TPI, an advisor to global corporations on all facets of their service-delivery strategies for business support operations, today announced the developments for 2006 in the global outsourcing industry through the company's TPI Index report. The contracts awarded in 2006 represented the single-greatest number of such agreements in any year, up three percent from 2005’s previous high. After an exceptional first quarter, the year concluded with a total contract value (TCV) of $78 billion, amounting to an eight percent decline from the prior year. Annualized contract value (ACV), an estimate of the average yearly revenue potential that may be derived from the 2006 contract awards, reflects roughly a seven percent year-over-year decline in ACV, according to the report.

 

”The 2006 numbers were down due in part to shorter contracts as well as those with smaller dollar values,” said Peter Allen, partner and managing director for Market Development at TPI. “However, the market is growing. The ACV signed for 2006 was the second strongest year ever for annual value coming online, and the industry also had a record year in contracts with annual average spend of $100 million. The year-over-year comparisons are down due to an exceptionally strong 2005, rather than a weak 2006.”

 

According to TPI, the number of “mega deals” — those with contract values above $1 billion — was unchanged from 2005 but off $5 billion in total contract value from the prior year. Elsewhere, the total number of transactions completed as the result of a restructuring of a prior contract was a record at 72, but the TCV of just over $20 billion was not a record.

 

TPI states that outsourcing continues to grow abroad, with markets in Asia and Europe maturing. Asia-Pacific experienced a five-year high in both volume and value of contracts signed. Europe recorded the greatest number of contracts ever, but not the largest TCV. Most of the new contracts signed in Europe were smaller in contract value than in previous years.

 

“This past year actually showed the second straight year of double-digit TCV decline in the business process outsourcing (BPO) industry, a 15 percent fall from 2005, and this was a significant reason why 2006 numbers were down from 2005,” added Allen. “This decline was the result of fewer multi-process BPO contracts, or those arrangements in which an organization opts to source out more than one support process at a time. Instead, companies and organizations sought more single-function solutions. In fact, fewer multi-process contracts were signed in 2006 than in each of the previous four years.”

 

While fewer multi-process deals were completed, single-process contracts tended to grow both in volume and value, particularly within Financial Services Operations outsourcing (FSO), which nearly doubled in TCV from 2005.Yet even among single-process deals, not all sectors experienced growth. For example, there was a drop off in new sourcing contracts for Customer Relationship Management (CRM) operations such as customer call centers, as organizations instead sought best-in-class solutions for those processes.

 

To view the report in detail, contact TPI at www.tpi.net/knowledgecenter/tpiindex/.