Mega IT outsourcing deals move offshore
- 23 July, 2012 13:52
- Comments
Mega-deal outsourcing deals--those contracts with a value of $1 billion or more-picked up in the second quarter of 2012, according to the quarterly Global TPI Index. Five mega-deals were signed during the quarter compared with just one each in the second quarter of 2011 and the first quarter of 2012. All five were awarded outside of the mature U.S. and Western European markets-three of them in India and Brazil.
Mega-deal activity is always fairly uneven quarter to quarter, said John Keppel, partner and president of research and managed services for outsourcing consultancy ISG, which produces the index. But the location of the awards is worth noting.
"In the future we expect most new scope growth to come from emerging markets," said Keppel, "while the U.S. and Western Europe will generate the bulk of restructuring activity."
The mega-deals awarded by companies in the telecom, banking and consumer goods industries with a combined value of $6.3 billion, accounted for nearly 30 percent of global contract value signed during the second quarter. Four of them were entirely new deals, while one was a restructuring.
Additionally, 11 mega-relationships-those with an annual contract value of $100 million or more--were initiated in the quarter, the most since 2009 and an increase of four signed the year prior and seven in the previous quarter.
Keppel doesn't expect the mega-deal activity to return to decade-ago levels of robustness. "Some mega deals in the past year, especially those that are restructuring-related, are being broken up and returning to the market in the form of multiple smaller contracts with shorter durations," said Keppel. And the bellwether for large outsourcing deal affairs is likely to be the mega-relationship category of deals as contract durations continue to get shorter. The average deal length so far this year is 4.85 years, compared to 6.48 back in 2000.
"We expect mega-deals and mega-relationships will continue to make up an important part of the market," said Keppel. "We also expect more mega-deals to be awarded in less mature regions but mega-relationships to continue in mature and less mature regions."
Taking into account all outsourcing contracts worth $25 million or more, $13.1 billion in IT outsourcing business took place in the second quarter, up six percent year over year but down five percent over last quarter due to light contracting activity.
TPI is predicting a softer outsourcing market in the third quarter. "Historically, third quarters have been softer than other quarters, and current industry pipelines suggest this will hold true in 2012," Keppel said. "The fourth quarter will likely pick up, with some help from larger deals in the pipeline ready to go to award."
Meanwhile global outsourcing vendors continue to battle it out for business. American multi-national service providers have held 53% of total market share since 2010, down 10 percent from the 2007 to 2009 period.
European, Middle Eastern and Asian (non-Indian) vendors held 25 percent of the market since 2010, up three percent from the 2007-2009 period. While the Indian-heritage firms gained seven percent in market share, from 15 percent in the 2007 to 2009 period to 22 percent today.
Stephanie Overby is regular contributor to CIO.com's IT Outsourcing section.Follow everything from CIO.com on Twitter @CIOonline, on Facebook, and on Google +.
Read more about outsourcing in CIO's Outsourcing Drilldown.
Recommended
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.
- Bookmark this page
- Share this article
- Got more on this story? Email CIO
- Follow CIO on twitter
-
Why change management doesn’t work
-
Larry Page wants to see your medical records
-
Dual-Persona Smartphones Not a BYOD Panacea
-
After two-year hiatus, EFF accepts bitcoin donations again
-
CIOs struggle to deliver timely mobile business apps: survey
-
How the Cloud Changes the Game for Line of Business Managers in Midsize Companies
It can be argued that what distinguishes midsize businesses most from large and small companies is not size, but attitude. While attitude alone cannot mitigate the challenges faced by midsize businesses, technology can help. And no technology offers more promise than the cloud. This paper, explores midsize business challenges from the perspective, not of the IT department, but of the line of business managers they support. Read on. -
Real-Time Protection Against Malware Infection
Malware is at such high levels (more than 60 million unique samples per year) that protecting an endpoint with traditional antivirus software, has become futile. More than 100,000 new types of malware are now released every day, and antivirus vendors are racing to add new protection features to try to keep their protection levels up. Read more. -
New Demands for Real-time Threat Management
Many organisations are evaluating a new security model based upon IT risk management best practices. This is a good idea, but not enough for today’s dynamic and malevolent threat landscape. To keep up with IT changes and external threats, large organisations need to embrace two new security practices: real-time risk management for day-to-day security adjustments and real-time threat management to detect and remediate sophisticated, stealthy, and damaging security breaches (i.e., advanced persistent threats, or APTs). Learn more.
Get exclusive access to Invitation only events CIO, reports & analysis. 
