Global Outsourcing Transactions on the Decline

The global services market saw transaction volumes decline in the second quarter of this year, following a declining trend observed over the previous four quarters, according to Market Vista: Q2 2012, a quarterly market report by Everest Group, an advisory and research firm on global services. A one-hour webinar will be held August 22, 9 a.m. CDT, to present study findings and insights.

Market Vista: Q2 2012, which analyzes global outsourcing and offshoring activity contracts irrespective of contract value, found second quarter transactions and annual contract volumes fell 7 and 25 percent compared to the first quarter, respectively. The market witnessed 411 outsourcing deals in the second quarter, compared to 441 during the first quarter, and global transaction volume reach about US$2.2 billion in annual contract value (ACV). Compared to the first quarter of the year, Business Process Outsourcing (BPO) transaction activity dropped 19 percent while IT Outsourcing (ITO) transaction volumes fell 3 percent.

“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. “Buyers are taking advantage of increased provider competition in a tough market by negotiating shorter contract commitments at competitive prices.”

Other second quarter 2012 findings include:

The second quarter saw 54 major deals, each valued at over US$50 million in total contract value (TCV), two of which were valued at over US$1 billion in TCV.

Compared to the first quarter of the year, the public sector (government and defense) accounted for one-fourth of total transactions, an increase of 22 percent in ACV and most of the ITO contracts during the quarter.
The BFSI (banking, financial services and insurance) sector, holding almost one-fifth of market share, continued to lead the market in transaction volumes with overall ACV increasing 61 percent compared to the first quarter of the year. The MDR (manufacturing, distribution and retail) vertical, with 17 percent market share, saw a 3 percent increase in transaction volume and 44 percent decline in ACV compared to the previous quarter.

Transaction volumes continued to decline in major markets such as North America and Western Europe but picked up in other geographies including Australia, Brazil and India.

Set-ups of Global In-house Centers (GICs) were balanced between Europe, India and Asia-Pacific while Latin America and Africa experienced limited activity.

Location activity increased significantly as 47 new delivery centers were established across GICs and service providers, including a notable spike in set-ups in tier-2/3 locations, particularly in Asia.

Service providers’ consolidated revenues and margins fell in the first quarter of 2012 compared to the previous quarter (Financials lag other service provider activity by one quarter).