Outsourcing Poised to Recover?

While outsourcing may look as if it got a big boost in the third quarter, with total contract value 21 percent higher over Q2 and 40 percent higher year over year, a closer look reveals another trend may be responsible for the spike.

Sourcing data and advisory giant TPI, which acts as a matchmaker between those outsourcing jobs and those providing the work, notes in its third quarter Global TPI Index that a five big telecom-to-telecom deals accounted for about 30 percent of the value in Q3.

Mark Mayo, a partner and president of TPI, says these big telecom-to-telecom plays began in 2006 as carriers began developing new wireless networks.

But take out the big telecom deals in Q3 this year, he says, and the total contract value stays in line with the rest of this year in a solid but slow growth line.

The Q3 Global TPI Index, which tracks commercial contracts valued at $25 million or more, recorded 139 transactions during the quarter with total contract value (TCV) of $24.7 billion. TPI says it was the highest quarterly total contract value since Q4 of 2008.

However, the Stamford, Conn.-based company says that excluding the big five telecom deals, the total contract value reached only $17.2 billion – in line with the slower pace of the most recent four quarters.  TPI says the market’s year-to-date TVC of $62.6 billion remains at 10 percent below the same point last year. Excluding telco-to-telco contracts it is 23 percent lower than last year.

Mayo says that while the most recent quarter doesn’t show much of a recovery, “we are optimistic about what’s going to happen in the marketplace in the next 6 to 9 months,” in terms of deals in process.

“I think we are definitely going to see a return to the market away from where we were in the last five quarters,” he says.

That said, Mayo notes that the marketplace has been changing over the last 4 to 5 years.

“We’ve been tending towards smaller deal opportunities which have less contract value and are for a specific function.”

Some of that may be coming from a bit of a hangover from mega deals in BPO where the providers could not deliver as promised, according to Mayo.

“So what you are tending to see now is companies are buying in smaller, less risky, bite-sized portions,” Mayo says.

Mayo adds that we are also likely on a verge of a recovery in outsourcing by financial services companies. As the recession began with them, their outsourcing work has slowed over the last several quarters, Mayo notes.

“But the financial services opportunity will be good for the market because they have typically been number one in terms of adoption of outsourcing.”