Outsourcing drops to six-year low
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But dip is merely momentary, says outsourcing market researcher TPI
The most recent financial quarter has seen the lowest volume and value of outsourcing deals in six years, according to research published by outsourcing market watcher TPI.
Worldwide, only 128 outsourcing deals were signed in the third quarter of 2008, with a combined value of €11.5 billion.
During the quarter, there was just one mega-deal – which TPI defines as an outsourcing contract worth $800 million or more. In each of the three previous quarters, mega-deals have totalled at least $7 billion.
In Europe, the Middle East and Africa, the decline was particularly sharp: the total value of outsourcing deals dropped from the €14.8 billion in the second quarter of 2008 to €4.4 billion in the third.
But according to TPI, the slow quarter merely reflects a contraction following an extended period of heavy outsourcing.
Indeed, following the recent announcement that financial institution Citigroup is to sell its business processing resources to Indian IT services provider TCS, 2008’s global outsourcing tally is likely to outstrip last year’s total, the company said.
“It seems likely that the sharp decline in outsourcing in EMEA in the past quarter is a temporary pause following the most intensive nine months of outsourcing activity in the region’s history,” said Duncan Aitchison, TPI EMEA partner and president.
“We are aware of several large transactions already under way in Europe and, therefore, expect to see a stronger performance in the fourth quarter.”
However, the timing of the dip is certain to be seen by some as evidence of the impact of the financial crisis upon the outsourcing industry.
The financial services industry in Europe saw a sharp decline in outsourcing during the third quarter, TPI found, with the average contract value in the sector having fallen 37% to €107 million.
Last month, the union representing Lloyds TSB workers demanded that the high street bank withdraw from outsourcing contracts following the announcement of a proposed merger with rival HBoS. Moving jobs previously offshored to India back in house would reduce the redundancy cost the merged company would have to pay, the union argued.
Further reading
Citigroup to sell its Indian back office to TCS
Lloyds TSB told to scrap offshoring by workers
Offshore 2.0
Organisations are now looking to their sourcing partners for technology and business process innovation
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