Outsourcing bombs to six year low

Davey Winder
Thursday, 16 October 2008 17:12

IT Industry - Strategy

TPI is the largest sourcing data and advisory firm in the world, and as such the TPI Index is a good barometer of just how well the global outsourcing market is performing. Or should that be just how badly?

Perhaps it should come as no surprise that the outsourcing market has hit a brick wall, given the current economic climate. Which makes it all the more intriguing that, although still in decline, the American outsourcing market is outperforming EMEA for the first time in two years.

The TPI Index for the third quarter of 2008 reveals that a mere 128 contracts were signed globally, with a combined value of 11.5 billion Euros. To put that into some perspective, only one 'mega deal' where the contract is valued in excess of 800 million Euros was signed.

Compare that to the previous three quarters, where there were more than 7 billion Euros worth of mega deals in each and every quarter. All of which combines to make this the weakest quarter for total outsourcing contract deals for some six years.

TPI president, Duncan Aitchison, tells us that he believes "this is temporary and that 2008 is still set to post strong annual figures, surpassing 2007. Third quarters are traditionally weak, and looking ahead, we see considerable activity in the market."

The TPI Index certainly did not see considerable activity by the traditional driver of outsourcing activity in recent times, the Europe, the Middle East and Africa (EMEA) region, though. Indeed, it showed a very sharp decline.

How sharp? How does a drop from 75 contracts totalling 14.8 billion Euros in the second quarter down to 56 contracts worth just 4.4 billion Euros in the third grab you?

"It seems likely that the sharp decline in outsourcing in EMEA in the past quarter is a temporary pause following the most intensive nine months of outsourcing activity in the region's history" Aitchison says, concluding "We are aware of several large transactions already underway in Europe and, therefore, expect to see a stronger performance in the fourth quarter."

What about outsourcing in the financial services sector? Just how badly has this been credit crunched? More data on page 2...

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