Despite the continued controversy surrounding offshoring, a record level of outsourcing deals currently under negotiation involves offshoring, according to the latest Quarterly Index data from sourcing advisory firm, TPI.
An analysis of deals on which TPI is currently advising reveals that almost half (47%) involve offshoring or ‘global service delivery’. This compares with 28% at this point last year and represents a record high. Furthermore, where outsourcing contracts contain an offshore element, a far greater proportion of the work is moving offshore, averaging almost half (48%) of the contract value, up from 27% a year ago.
Indian service providers winning bigger deals
This growth in offshore outsourcing is further evidenced by impressive gains for the Indian service providers, whose market share has risen to 5.2% of the total value of contracts signed so far this year, up from less than 3% in 2005 and just over 1% in 2004.
Moreover, data relating to deals currently under negotiation points to a dramatic, almost threefold (284%) increase in the value of deals for which the Indian providers are competing, compared with three months ago.
The size of deals the Indian service providers are winning is also increasing, up by 25% from an average deal size of $128 million in 2005 to $160 million in 2006 to date.
Of 11 contracts totaling $1.7 billion awarded to Indian providers this year, 9 are in Indians’ traditional areas of strength in applications development and maintenance (ADM) or finance and accounting (F&A). However, data on the transactions on which TPI is currently advising reveals that the Indian providers are now being considered for remote IT infrastructure work as well.
However, the Big Six of outsourcing — Accenture, ACS, CSC, EDS, HP and IBM — still dominate the offshore outsourcing market having won almost three quarters (73%) of contracts in 2006 to date compared with 18% for the Indian providers.
Strong demand for outsourcing in UK, despite a dip in Europe
UK companies have signed outsourcing contracts totalling over $6.6 billion so far this year, up 9% from $6 billion this time last year.
The continued strength of the UK market contrasts with the rest of Europe, where demand for outsourcing has dipped. The total value of contracts signed in Continental Europe so far this year ($6 billion) is some 30% lower than the equivalent figure at the same time last year.
Taking a global view, the UK accounts for 17.2% of the value of contracts signed this year, Germany 6.6% and the Netherlands 2.6%, with no other country in Europe representing over 2% of the global market.
The strength of the UK market is also demonstrated by the growth in business process outsourcing (BPO) by UK companies.
The UK accounts for over a quarter (27%) of the total value of business process contracts signed worldwide to date in 2006, up from 19% in 2005 and 23% in both 2004 and 2003.
The next largest user of BPO in Europe is Germany, representing 3.8% of the value of contracts signed globally this year.
