The Hindu Business Line : Global outsourcing turning soft: TPI

New Delhi, Nov. 13 The weakness in the financial services market and overall recessionary trend reflected in the global IT and BPO contracts awarded in the quarter ended September 2008.

Outsourcing contracts worth $14.4 billion in Total Contract Value (TCV) were inked in Q3, a 50-per cent drop compared to the previous quarter. Even in terms of the number of outsourcing contracts, at 128, showed a 22-per cent decline.

Importantly, while traditionally the third quarter is the weakest quarter of the year, it was lower than historical average by almost 20 per cent this year, according to the latest TPI Index. TPI is a sourcing data and advisory firm and its index reflects commercial outsourcing contracts valued greater than $25 million.

“The share of Indian service providers in the industry-wide contracts remained almost steady at 11 per cent. Overall, the Q3 2008 has been the weakest in 10 years,” Mr Siddharth A. Pai, Partner & Managing Director, TPI India, said.

While only one mega deal (contracts with TCV over $1 billion) was signed, the quarter exhibited a paucity of mega relationships (contracts in which the Annualised Contract Value is over $100 million). ACV is the value of a contract divided by its total duration.

Performance in Europe, the Middle East and Africa declined significantly in TCV levels compared with recent quarters and there was a dramatic drop in Information Technology outsourcing contract value compared with the first two quarters. However, despite the softness in Q3, the 2008 year-to-date numbers and value of outsourcing contracts exceed metrics of 2007.

Compared to last year at this point, the number of contracts awarded has risen almost five per cent. TCV of those contracts has grown nearly 19 per cent, and their ACV has climbed 27 per cent. The full year 2008 looks to be on course for a strong overall result.

Anticipating a strong fourth quarter award values, TPI said the current crisis is likely to introduce softness in outsourcing contract awards entering 2009.