The Hindu Business Line : Global outsourcing market shrinks in Q3, says TPI

The scenario
The economic slowdown in the US has also contributed to the lesser number of deals.
The Indian vendors have gained market share and currently possess about 25 per cent of the application development and maintenance market value.

Bangalore, Nov. 5

Has the US slowdown begun to reflect on the IT and BPO deals emerging from the region? It seems so if one goes by the latest quarterly report released by advisory firm TPI.

The TPI Index reveals that the size of the global outsourcing market has shrunk for the first time in the third quarter of 2006, considered worst for outsourcing deals since 2002.

However, for Indian vendors this development is not a cause for concern as they continue to grab market share in challenge to traditional multinational players. The report said the 2006 third quarter saw a decline in contracts by volume and value for the same quarter last year.

In the overall outsourcing market, TCI claimed to have advised 25 per cent of the total deals since 2000.

Mr Siddharth Pai, partner and Managing Director, TPI India, attributed the shrinkage in Q3 outsourcing deals to factors such as changing market dynamics, wherein the larger deals were being split into smaller, single process deals and declining contract values. Deals worth $55.3 billion were signed in the first nine months of 2006 as compared with $82 billion in 2005. "Its unlikely that the fourth quarter total contract value will push the total award value beyond the 2005 level," Mr Pai said.

While TPI advised over 334 contracts last year, the year-to-date figure stands at 249 with another 84 transactions being currently advised.

The mega deals with values exceeding a billion dollars were seen missing this year as shorter-term contracts of four-five year durations have become more popular. "Only two per cent of contracts signed in the broader market having a 10 or more year term," Mr Pai said.