Outsourcing deals hit six-year low

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The contract value of outsourcing deals have hit a six year low this quarter, new figures have revealed.

According to the TPI Index for 2008, the third quarter showed that only 128 contracts were signed globally, worth a total €11.5 billion (£9 billion). Only one mega deal – valued at €800 million (£625 million) or greater – was signed, compared to more than deals worth €7 billion (£5.5 billion) in each of the past three quarters.

And the Americas outperformed EMEA for first time in nearly two years in terms of global market share. In the past, outsourcing activity has been driven primarily by activity in Europe, the Middle East and Africa (EMEA).

In EMEA, 56 contracts totalling almost €4.4 billion (£3.4 billion) were signed in the third quarter of 2008 compared with 75 contracts totalling €14.8 billion (£11.6 billion) during the second quarter of this year.

But looking at the data year to date, the volume and value of outsourcing contracts still exceeds metrics for 2007, the sourcing data and advisory firm said. And all indicators, including the recent mega-deal acquisition by TCS of Citigroup’s business process outsourcing (BPO) operations, suggest that the full year of 2008 is on course for a strong overall result – beating 2007’s total of €68 billion (£53 billion).

Duncan Aitchison, TPI EMEA partner and president, said: “Third quarters are traditionally weak.” And he added that the firm was aware of several large transactions already underway in Europe and, therefore, expected to see a stronger performance in the fourth quarter.

The index concluded that fewer contracts signed in the third quarter were smaller in value due largely to more limited scope of services rather than shorter contract durations. This was most clearly demonstrated among financial services institutions.

The average total contact value of a financial services sector outsourcing contract in EMEA fell by 37 per cent to €107 million (£83.6 million) so far this year. The banking sector has experienced a decline of 62 per cent in total contract valued signed in EMEA since January this year, while the insurance sector saw a 34 per cent fall.

Aitchison added: “Prolonged uncertainty in the financial services sector could dampen or delay decision making about outsourcing, but whether it will spread to other industry sectors is difficult to predict."

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