Outsourcing contract values decline by a quarter

10 August 2012

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11 August 2012 | Kamalpreet Badasha

Outsourcing activity declined in the second quarter of 2012 as annual contract volumes fell by 25 per cent compared with the first three months of the year.

There were 411 deals signed in the second three months of the year, compared to 441 during the first quarter.

“A sluggish global economy and the relatively conservative approach of buyers continue to have an impact on the global services market,” said Eric Simonson, managing partner of research at Everest. “Buyers are taking advantage of increased provider competition in a tough market by negotiating shorter contract commitments at competitive prices.”

The Market Vista: Q2 2012 report from Everest Group examined outsourcing and offshore activity for the second quarter of 2012. It found business process outsourcing (BPO) transaction activity dropped by 19 per cent. The contract volumes for outsourcing declined in North America by 12 per cent and western Europe by 21 per cent, compared to the first quarter. But the number of deals increased in Australia, Brazil and India by 35 per cent.

There was a significant increase in the set-up of offshore delivery centres in Asia, with 32 established. Just eight were set up in Latin America and seven in Europe and Africa.

It also looked at global in-house centre (GIC) activity, where a company moves business operations to a low-cost location. Asia accounted for 12 GIC set-ups including Wal-Mart opening a new R&D centre for e-commerce in Bangalore and Lenovo opening a new R&D centre in Wuhan, China. In Europe there were seven GICs opened, as Cisco launched a global support centre in Krakow, Poland and Nielsen & Nielsen opened a financial centre in Kaunas, Lithuania.

The study also noted the buyers were looking to evaluate providers in Vietnam, Bulgaria, South Africa and Romania when setting up new delivery centres. It also said there would be increasing competition for IT outsourcing resources in Costa Rica.

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