Suppliers of back-office services expect demand boost

31 May 2013

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Back office services suppliers are predicting an upswing in demand after suffering a tough year but are also expecting many customers to renegotiate contracts, a survey has found.

According to KPMG’s Global Pulse survey, 68 per cent of vendors expect to see an increase in demand for business and IT services between now and December 2013.

A year ago only 59 per cent of suppliers were confident that short-term demand would increase. This year's figures represented the highest level of optimism since July 2011.

However results were tempered by suppliers’ fears that customers would seek to renegotiate contracts. Seventy-one per cent feared customers’ ability to increase the scope of current deals would increase, hitting profitability.

Lee Ayling, a partner in KPMG Management Consulting, said: Clients are not shy to play the ‘contract cancellation’ card in an effort to reduce costs. They won’t pull out of a contract without finding alternative services that can keep their business running efficiently, but many are becoming adept at gaining the upper hand in contract negotiations.”

More than half (52 per cent) of providers said that IT remains the area where support is most needed, followed by demand for assistance with finance projects (40 per cent). However requests for help with customer care programmes and HR have fallen and now account for only 10 per cent and 8 per cent of demand.

The survey also indicates that buyer pricing pressure, currency exchange rates and new technologies are hitting profitability. Suppliers said clients’ demands for automated systems and cloud-based options meant long-term management contracts were not always required.

Of those who had secured new deals, just 38 per cent said profitability was improving. 

Many suppliers are looking to increase the range of deals they offer. Ayling said this was a sensible move because “buyers are looking to reduce their supplier base and cut back on spending levels”.

He added: “There are signs the economy is set for growth but we are still in a market where short-term savings seem to be the order of the day. Until this changes we are likely to see the balancing act between service provision and cost reduction continue to play out as contracts come up for renewal.”

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