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Outsourcing market matures
More first-gen deals up for renewal

By Steve Ranger

Published: Thursday 13 July 2006

The outsourcing market continues to mature, as more first generation deals come up for renewal.

According to outsourcing advisor TPI, the outsourcing market in the first six months of this year was slightly ahead of the same period last year in terms of the total value of the contracts signed, and saw 92 BPO contracts signed - a 58 per cent increase on 2005.

But the consultants think it will take a strong second half of the year - with few big contracts on the horizon - to match last year's bumper crop of deals.

Financial services was the sector most keen on BPO, accounting for almost 40 per cent of the total BPO market share, with manufacturing picking up 31 per cent.

Contract restructurings - renegotiations, extensions and renewals to existing agreements - are also taking up a larger proportion of the market as the outsourcing model matures.

Around a third of outsourcing contract value (34 per cent) up for grabs this year is restructuring, according to TPI and this is likely to grow to 38 per cent.

The value of restructuring deals coming to market tends to be bigger that the brand new outsourcing deals up for tender. Around €12.5bn in restructuring deals is likely to be on offer next year.

The contract length of mega-deals - bigger than €400m - is also falling. Between 2000 and 2004, the average contract duration for these contracts was 8.15 years. Since 2005 that has dropped to 6.5 years.

And while Indian service providers still only hold a small part of the overall outsourcing market - 5.2 per cent compared to 3.5 per cent last year - they are making their influence felt, signing 11 contracts valued at more than $50m.