[October 17, 2005] TPI Index Forecasts 10 to 15 Percent Decline in Global Outsourcing Total Dollar Value Awarded this Year Tweet HOUSTON --(Business Wire)-- Oct. 17, 2005 -- Despite Record-High Numbers of Outsourcing Contracts, Transactions Are Smaller in Total Contract Value (TCV)--Largely Due to Increased Use of Offshore Solutions TPI, Inc., the world's first and largest sourcing advisory firm, today published its latest market observations in the TPI Index, a quarterly report on the state of the global outsourcing industry for financial analysts, media and sourcing industry participants. Third-quarter results indicate an expected decrease of 10 to 15 percent in total dollar value for outsourcing contracts awarded in 2005, to US$60 to $65 billion from an average of US$72 billion awarded in recent years. To date, the year's total contract value (TCV) is US$43.8 billion for transactions signed in the Americas (US$21.3B), Europe (US$20.3B) and Asia (US$2.2B), compared to a global total of US$52 billion this time a year ago. "The decline in outsourcing transaction value is due to several factors," stated Peter Allen, Partner and Managing Director, Global Practices, TPI, Inc. "With the exception of HRO, BPO has not grown as quickly as some had expected. Firms are increasingly taking advantage of offshore service delivery, reducing the TCV of contracts. TCV is also sluggish because of reduced capital intensity and shorter terms in ITO contracts." The decline in TCV notwithstanding, Q3 2005 marked a record gain of 11 percent in the total number of outsourcing contracts signed year-to-date, to 191 from 172 this time a year ago. This quarter's contracts numbered 57 valued at US$13.5 billion, compared to last quarter's 54 worth US$15 billion. A year ago, the third quarter saw 49 contracts worth nearly US$19 billion. While the number of contracts has increased, average TCV has declined considerably. Also affecting overall TCV is the marked increase in contract restructurings this year. Nearly 28 percent of the restructurings in the TPI pipeline are competitive, more than ever before, indicative of overall industry competitiveness. "Additionally, offshore buy-side strategies have strengthened during 2005, and global service delivery (GSD), aka offshore outsourcing, will experience accelerated growth in the coming 18 months, particularly among client companies with three or more years of experience under their belts," commented Paul Schmidt, Partner and Global Service Delivery Practice Lead for TPI. "GSD is spurring intense competition among established, multinational service provider firms and fast-growing offshore 'pure play' companies in countries such as India." "Clearly, outsourcing is not falling out of favor. In fact, this year it is more prevalent than ever. But the value of the outsourcing pie has shrunk in size compared to 2004 as the value of individual transactions is generally getting smaller," commented Peter Allen. "With the number of transactions growing and overall values declining, the effect of global service delivery alternatives for outsourcing is ever more apparent but certainly not a new phenomenon." About TPI TPI is the world's first and largest sourcing advisory firm. Recognized as the most informed resource of strategic sourcing advisory services, TPI founded the sourcing advisory industry 16 years ago. TPI represents enterprises seeking to evaluate the merits of outsourcing, not the service providers who bid on these engagements. Since 2000, TPI has advised on nearly 30 percent of total contract value awarded in the broader outsourcing market, including commercial contract awards valued at greater than $50M. Since its founding in 1989, TPI has advised on more than 700 transactions with a total contract value of US $373 billion. With more than 300 advisors to help clients find the right balance of value, speed-to-market and risk mitigation, we remain the most sought-out advisory firm in the global outsourcing industry. For more information, visit www.tpi.net. [ Back To TMCnet.com's Homepage ]