Outsourcing market has mega comeback

The global outsourcing market bounced back after a shaky start last year thanks to a spate of mega-deals and continued double-digit growth among Indian companies.

Special Report: Inside India

In February silicon.com's Steve Ranger visited the Indian tech hotspots of Bangalore, Mumbai, Pune and Hyderabad. Click on the links below to see photo galleries of the cities and companies visited.

♦ Satyam's IT campus
♦ Hyderabad's tech parks
♦ Bringing tech to rural India
♦ High-tech on the streets of Pune
♦ Pune - the new Bangalore?
♦ Boom town Bangalore
♦ Bangalore's Electronics City
♦ SAP and Wipro in Bangalore

Despite a drop of 12 per cent in the number of providers winning contracts and the total contract value (TCV) falling to a five-year low, the TPI Index report is optimistic about prospects for this year.

The index analyses outsourcing contracts worldwide that have a value more than $25m.

A resurgence during the fourth quarter saw a TCV of $27bn, the highest since the first quarter of 2006, and the biggest actualised contract value - the amount of the deal actually drawn down by the provider - during a quarter in 11 years.

TPI estimates there were 2,700 active contracts, yielding approximately $79bn in annualised revenue at the end of 2007.

Duncan Aitchison, partner and MD for Europe at TPI, said: "The record of outsourcing growth exceeded seven per cent, we anticipate we could have seven to eight per cent through 2008."

The year saw the Americas fall behind Europe, the Middle East and Africa in the number and value of outsourcing contracts for the first time.

India saw strong growth in companies both buying and providing outsourcing, with India-heritage service providers experiencing 40 per cent growth year-over-year and Indian companies topping the list of buyers outsourcing in the Pacific.

Companies in China signed several large outsourcing contracts as well in 2007.

Fuelling the end of year recovery was a sharp rise in mega-deals - contracts worth several hundred million dollars.

Business Process Outsourcing (BPO) experienced a resurgence after a lacklustre performance in preceding quarters.

The fourth quarter saw the highest TCV for BPO contracts since the fourth quarter of 2005 and the highest actualised contract value since the second quarter of 2004.

Within the BPO sector financial services outsourcing and multi-process BPO markets were strong.

Human resources outsourcing demand fell by 34 per cent and more than $2bn TCV in 2007 compared to 2006.