Highest ever outsourcing contracts in Q1

With as many as 83 outsourcing transactions with a total contract value (TCV) of $22.7 billion, the first quarter of the current calender year saw the strongest ever performance in the history of outsourcing, according to the quarterly report on the global outsourcing industry announced by outsourcing advisory firm TPI on Thursday.

The quarter also saw seven mega deals each worth over one billion dollar, although the size of the contracts is coming down, it added. Out of the transactions, 7 went to India-based service providers with total value of $512 million, a 2.3 per cent of the total value.

Cost savings, the report said, is relatively a myth since contrary to the usual belief, a research conducted by TPI examining the outsourcing contracts awarded between 2003 and 2005 found that the companies enjoyed just 15 per cent of cost savings in an average.

"It is the quality and timely delivery of the services which play a huge role apart from cost savings, while going for outsourcing," Pai said. "In our experience, outsourcing arrangements which focus solely on delivering of huge savings often fail to meet clients' expectations," said Siddharth Pai, partner & MD, TPI India.

The TPI report said that in terms of industrywide contract, American firms topped the list with 69 per cent of the total contract value, replacing Europe which has shrunk to the number two position with 25 per cent of the total value in the quarter. In the corresponding quarter last year, Europe was leading with 46.9 per cent of the total value. Asia Pacific contributed 6 per cent of the total value.

Restructurings, which include renegotiations, extensions and renewals to the existing agreements, represented 33 per cent of the total contract value signed in the quarter, which is also another area of shift in the quarter. In the whole of 2005, restructurings contributed just 24 per cent of the total value.