Here’s some good news for the Indian IT services sector. The initial signs on IT budgets for CY2013 seems to be healthy and better, on the back of a slow recovery in the US and demand for BPO services.
According to the TPI Index, presented by ISG-One, which measures commercial outsourcing contracts with an annual contract value (ACV) of $5 million or more, market growth in terms of annualised revenue is projected to be 3-4 per cent in 2013.
"Looking forward, we see a mixed picture. We note some transaction push-out, but it is not nearly as extreme as when the recession started in 2008. The short-term pipeline appears healthy – and better than ever according to service providers – yet the longer-term view into 2013 has not yet solidified. The sustained BPO performance is encouraging, and renewed positivity in the US. market as well as underlying structural trends in the Americas give us added cause for optimism going forward," said John Keppel , CMO and President, ISG.
Accoring to the TPI Index the full year 2012 also seemed to have done better. In total, the market awarded 1,006 contracts during 2012, down 13 per cent from the previous year but still above the five-year average for awards.
For the full year, the global market's ACV totaled $21.2 billion, a decline of just 3% from its record performance in 2011. Leading the market in 2012 were mega-relationships (those contracts with an ACV of $100 million or more); the business process outsourcing (BPO) segment, which had its best full-year performance on record; and Asia Pacific, which also had a record year.
"Fourth-quarter results typically improve on those for third quarters, but this one did not, mainly because it followed such a substantial third quarter. Distractions from elections in the US as well as Superstorm Sandy could partially explain this quarterly drop, as October and November were the lightest months of the year. Still, the market's full-year performance nearly met the record it set in 2011," said Keppel.
By scope, the market awarded $1.9 billion in BPO contracts during the fourth quarter, down 1 per cent year-over-year but up 5 per cent sequentially. Full-year BPO ACV reached $7.9 billion, an increase of 14 per cent over 2011. Leading the way were large awards in industry-specific BPO and facilities management, as well as renewals of several significant first-generation HR Outsourcing contracts.
In contrast, the ACV of contracts for IT outsourcing (ITO) dropped to $2.9 billion, a decline of 37% from a year ago and 18 per cent from the prior quarter. For the full year, ITO ACV totaled $13.3 billion, a decline of 11 per cent. The segment suffered from a difficult comparison with 2011, which included the $1 billion Siemens-Atos mega-relationship. However, the 650 ITO contracts signed during 2012 marked the second-best annual total on record.
The global commercial market awarded eight mega-relationships in the fourth quarter and 34 for all of 2012, the largest full-year total since 2006. For the second straight year, one-quarter of all mega-relationships were awarded in emerging markets. The ACV of mega-relationships fell 50 per cent from the fourth quarter of 2011 and 24 per cent from the third quarter of 2012. However, mega-relationship ACV for all of 2012 rose 7 per cent from the year before.
In Asia Pacific, the $500 million in fourth-quarter ACV was flat year-over-year but declined 34% sequentially. However, the region tallied a record $3.1 billion in full-year ACV, up 55% over 2011 despite significant volatility in the market. While Australia and New Zealand experienced a reversal of recent growth trends, outsourcing by companies in India, China and Southeast Asia reached all-time highs, benefitting from increasing contract values and volume.
Key takeaways from 2012
* 1,006 contracts awarded in 2012
* Global market ACVs at $21.2bn, down 3% y-o-y
* BPO ACV reached $7.9bn; up 14% y-o-y
* ITO ACV at$13.3bn; down 11%
* 650 ITO contracts signed, second best annual total on record
* 34 mega-relationships for all of 2012, the largest full-year total since 2006
