While multisourcing, smaller outsourcing deals, EMEA and India are the new colors of the maturing outsourcing industry, in the first three quarters of the year 2007, the number of outsourcing contracts — valued at a total of $50 million and greater — awarded plunged to 228 (16 percent down) from the previous year’s 272 contracts during the initial nine months, according to the TPI Index report by TPI, a sourcing advisory firm. As a result, the Total Contract Value (TCV) of such deals also fell down to $47.7 billion (down by 17 percent) in 2007 YTD from $57.5 billion during the same time period in 2006. In fact, the average contract value of such deals fell dramatically by 18 percent in the same time frame.

“Based on market data and dialogue with the customers, we have noticed a significant decline in the number of outsourcing contracts as well as the total contract values,” says Peter Allen, Partner and Managing Director, Marketing and Development, TPI. Though, “overall demand of products and services is increasing.”

Interestingly, the Europe and Middle East Asia (EMEA) region has emerged as the “king” of the outsourcing world this time. And, the demand for outsourcing services in EMEA increased dramatically from 21.3 percent in the first nine months of the year 2006 to 26.5 percent YTD 2007, say the findings of TPI’s 20th quarterly index. The region has been increasingly outsourcing services, and has outsourced services worth more than $50 million in the last three quarters. In fact, the average TCV in EMEA increased to $26 billion as compared to $22 billion in the first three quarters of 2006.

While the entire region of Asia also showed an upward trend (with overall TCV increases by $1 billion year-on-year), India has proved to be the favorite destination. Despite the fall in outsourcing contract awards in the Americas, major Indian service providers have seen their Americas-derived revenue grow by 37 percent, on average, on a YoY basis, according to the study. These providers are betting on smaller transactions, and are seeking opportunities at the lower end of the outsourcing contract-value spectrum.

“The outsourcing industry is witnessing a rapid emergence of India as an outsourcing destination. At the same time, Europe and Asia are capitalizing on the Americas’ current lean toward smaller-sized contracts,” Peter adds further.

At the same time, Americas registered a sharp decline in the number of such outsourcing deals. The TCV of outsourcing deals for America stand at $29.5 billion (YTD 2007) against $13.7 billion (in the first three quarters of 2006), according to TPI.

Dealing Big? But, Small is Trendy! 

Whether it is GM-AT&T’s $1 billion deal, or KarstadtQuelle-EDS’ $1 billion contract, just like 2006, many mega deals (> $1 billion) are being signed in 2007. In fact, the number of such deals signed remained constant since last year. The TCVs of these mega deals have also fallen down to $12 billion in the first nine months of the year 2007 from $17 billion last year during the same time frame. In terms of regional contribution, mega relationships in Americas declined from 22 for all of 2006 to four in 2007 YTD while EMEA and Asia both are on the same page by meeting and exceeding the same number of mega relationships.

“The number of smaller contracts has picked up in the last three quarters, and the main reason behind the decline in the number of big deals is that customers are signing smaller contract with multiple providers. Customers are becoming more confident that they can now manage many providers at a time,” adds Peter.

Outsourcing Contracts (YTD Y/Y) with TCV > $1 Bn

Year	No. of contracts	TCV ($ Bn)
2002	10	17.9
2003	14	24.3
2004	18	30.9
2005	10	18.2
2006	11	17.1
2007	10	12.2

Source: TPI