labels: datamonitor, it news
Mid-size, government deals drive outsourcing market news
Our Infotech Bureau
18 January 2005

Mumbai: New research by independent market analyst, Datamonitor, and Dallas-based leading global outsourcing advisory firm Everest Group reveals the global outsourcing sector is increasingly being driven by mid-size contracts, particularly in the fast-growing business process outsourcing space.

Datamonitor's IT Services Contract Tracker, the most comprehensive and guide for contracts within the $600 bn global IT services market, tracked 1,814 outsourcing deals in 2004, a 4.4 per cent increase over the 1,738 logged in 2003. The combined value of the 2004 deals rose more sharply by 37 per cent to $163 bn compared to $118.9 bn the previous year.

The service tracks every new outsourcing, systems integration and consulting deal with a value greater than $1m signed by major IT services vendors, and contains information on more than 6,500 contracts signed during the last five years.

According to Datamonitor, the value of outsourcing deals in 2004 grew 37 per cent, reflecting a steady recovery in the IT services market. IBM Global Services captured the largest market share (10.7 per cent), with deals signed in the central government sector growing 78 per cent during 2004.

There were fewer mega billion-dollar deals in 2004 than in 2003 - 25 versus 29. This seems to tally with the belief that clients are adopting selective sourcing models, where they outsource specific IT and back office functions to specialist outsourcing vendors rather than hand over their entire IT department to a single supplier.

Nick Mayes, lead analyst for global computing services at Datamonitor, says, "One striking feature of the services market in 2004 was that the deals were distributed among a larger number of vendors than in previous years." The ten vendors with the largest single market shares of the contracts tracked in 2004 by value accounted for 57 per cent of the total. This compares to 68 per cent in 2003 and 70 per cent in 2002.

Michel Janssen, president, supplier solutions, Everest Group, commented, "We are seeing increasing competition from a variety of firms like ACS, Hewitt, and Perot that are beginning to win deals that were traditionally won by those in the top ten vendors. Looking further down the road, we are also seeing the top tier offshore vendors such as TCS, Infosys, and Wipro compete, and win, in head-to-head deals against top tier Western vendors - and the wins are increasingly larger in size."

The Datamonitor report also found a 39.8 per cent decrease in the average contract value for pure BPO deals. This drop in average value was being driven by a 51 per cent increase in the total number of these deals in the $20-$200-milllion range. There were almost six times as many deals in the $20m-$200m range compared to the $200 milllion-plus range.

Janssen also noted that for the first time, mid-to-large versus the large- to very large businesses dominated human resources outsourcing. "2005 will be the year that BPO goes mainstream, and it will be driven by mid-size client organisations," he said. According to him, companies with between 5,000 and 25,000 workers did more of these broad scoped HRO deals. In the past, companies with more than 25,000 employees were the ones inking HR outsourcing deals.

Nick Mayes is a lead analyst for Global Computing Services at Datamonitor, and responsible for the IT Services Contract Tracker.


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Mid-size, government deals drive outsourcing market