Indian buyers lead outsourcing growth in Asia Pacific

Mumbai:  The Asia Pacific region recorded the second straight year of growth across all measures, with its outsourcing growth -doubling year on year - being driven almost entirely by India-based buyers.

According to the latest TPI Index from sourcing advisory firm TPI, the outsourcing market in Asia Pacific grew substantially in 2007, fuelled primarily by increased demand from corporations based in India.

Outsourcing in Asia Pacific saw its second consecutive year of strong growth and showed an increase in demand across all measures. Although the number of contracts signed in 2007 grew by just 4 per cent, their total contract value increased 30 per cent year over year from $9.9 billion to $12.8 billion and annualised revenues showed a 13 per cent increase, nearly double that of the global average.

The Asia Pacific region was the only one to show an increase across all of these measures.

The average value of outsourcing contracts in Asia Pacific increased by 25 per cent from $141 million to $176 million, due largely to increased mega relationship activity in the region, especially in the last quarter of 2007. The region showed particular strength in mega relationships with nine signed in 2007 at a total value of $1.5 billion. This represents one-third of the mega relationships globally and contrasts sharply with the region's overall share of one-sixth of the global outsourcing market. Larger contracts have become popular among companies based in Asia.

In addition, BPO performance in Asia Pacific was particularly strong in 2007. BPO TCV in the region soared by 101 per cent  yielding the best year ever for BPO contract values in the region and leading average BPO contract value to increase by 81 per cent .

Outsourcing growth in Asia Pacific was largely driven by corporations in India and China, countries traditionally known for providers of outsourced resources. India has seen stepped up outsourcing activity within the telecommunications and financial services sectors whereas growth in China has been strongly influenced by a single telecommunications mega deal.

"In Asia Pacific, we usually we see Australia, India and Japan topping the list of countries buying outsourcing services," said Arno Franz, partner and managing director, TPI Asia Pacific. "In 2007, India led the pack by almost doubling the value of its outsourcing work year on year. It appears that, fuelled by a booming economy, Indian industry in particular has found outsourcing to be a viable tool to improve performance and drive growth in market share.

"With increased competition among Indian corporations and the potential privatisation of public sector organizations in the next few years, we expect to see this level of activity continue through 2008 and beyond," added Franz.

Alongside increased domestic demand for outsourcing, the India-heritage service providers' share of global contracts continued to expand in 2007, up from 6 per cent share in 2006 to 9 per cent in 2007. No other category of service provider increased market share at such a pace. Their share of the regional market also increased strongly, from 11 per cent to 16 per cent .

Other major findings of the TPI Index:

• Global outsourcing growth driven by Asia Pacific and EMEA
  In 2007, annualised revenue figures, the estimated annual revenue potential available to service providers from all active contracts, confirm an upturn globally.
  
  At the end of 2007, about 2,700 active contracts delivered around $80 billion globally in revenue to providers, accounting for a growth rate in annualised revenue of more than 7 per cent, ahead of the 5-year global CAGR of 5.3 per cent.
  
  However, from a regional perspective annualised revenues in Asia Pacific and EMEA revealed 5-year CAGRs of 10.8 per cent  and 15.8 per cent  respectively, while the Americas CAGR for the same period shows a decline of 1.9 per cent  highlighting significant regional differences.
  
  
• On a global level the fourth quarter was the best quarter on an ACV basis in eleven years
  On the basis of Annualised Contract Value the more than US$15B of ACV awarded in 2007 matched the five-year average. New scope ACV was up globally year-over-year by a healthy 13 per cent . The fourth quarter was the best quarter on an ACV basis in eleven years.
  
  
• Mega-Relationships revived globally in the fourth quarter
  The fourth quarter TCV was fuelled by strength in mega-relationships, those transactions with an ACV, or an average annual value, of $100 million or greater. The fourth quarter witnessed the greatest number and value of mega-relationships signed than any quarter in recent years. Despite this, globally there were fewer mega-relationships in 2007 than in 2006, and their yearly value was down slightly.
  
  
• Large BPO contract awards
  Additionally, the fourth quarter included some large BPO contract awards, which elevated the 2007 BPO TCV to the same level seen in 2006, despite fewer BPO contract awards. In 2007, 171 BPO contracts worth more than US$23B were awarded globally. The awards in the fourth quarter represent 23 per cent  of the year's total number but 40 per cent  of the year's TCV. The fourth quarter performance of 2007 represented the best quarter for BPO on a TCV basis in two years and the best in ACV in more than three years. Nevertheless 2007 saw a shift in relative share of BPO contracts from the Americas to EMEA and Asia-Pacific by both number of contracts and their TCV.

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TPI, a unit of Information Services Group, Inc. (ISG) on its acquisition in November 2007, is the founder and innovator of the sourcing advisory industry, and the largest sourcing advisory firm in the world. Information Services Group, Inc, (ISG) was founded in 2006 to build an information-based services company by acquiring and expanding businesses in advisory, data, business and media information services.