Global sourcing market dipped slightly in 2011 compared to 2010 - Everest Group

February 8, 2012

The global sourcing market saw a marginal decrease in outsourcing transaction volumes in 2011 compared to 2010 due to decreased transactions in the second half of the year, according to Everest Group, an advisory and research firm on global services. Although captive activity also dropped in the second half of last year, 2011 saw captive set-ups almost double in number compared to 2010.

According to Everest Group, captive model can be a viable core component of sourcing strategies for many organizations. Outlook for 2012 is cautious given several factors including financial volatility in Europe, anti-offshoring sentiments in the United States and United Kingdom, and the adoption of new technologies, particularly in ITO deals

Last year saw 1,929 outsourcing transactions compared to 1,979 in 2010, and annual contract value (ACV) of transactions decreased compared to the previous two years. Contract renewal and restructuring activity was higher in 2011 compared to previous years, accounting for one-fifth of transaction volumes and almost one-third of the marketís total annual contract value (ACV). IT Outsourcing (ITO) contracts accounted for two-thirds of total transaction activity; 32 percent were Business Process Outsourcing (BPO) contracts.

Other findings in the Market Vista: 2011 in Review and Market Vista: Q4 2011 reports include:

Financial services and manufacturing sectors continued to dominate outsourcing activity while healthcare activity increased significantly and public sector adoption dropped.

While North American transactions decreased marginally last year, activity in the United Kingdom increased by 32 percent compared to the previous year.

Although Q4 saw the signing of four mega deals, each valued at over US$1 billion in total contract value (TCV), the trend for mega deals shows a continued and steady decrease over the past three years with 11 signed in 2011 compared to 19 in 2010.

Asia continued to see the most new captive developments but notable activity also occurred in Eastern Europe, Middle East and Africa.

Last year saw the emergence of Brazil and Poland as mature global sourcing locations, underscoring their relevance in the global delivery footprint of leading players.

Political unrest in North Africa, examined in the Market Vista Q2 2011 report, reinforced the importance of risk management in sourcing portfolios.

Currency depreciation eroded arbitrage potential in Brazil, Chile and Malaysia while the rapidly depreciating Indian rupee created near-term opportunities for service providers and new entrants.

Revenues of leading service providers increased in 2011 compared to 2010, but operating margins fell.

Service providers continued to consolidate with Market Vista Index providers reporting about 50 merger and acquisition activities in 2011.

BPO in the financial services sector to reach US$250 billion
Positive growth outlook for the global sourcing market in 2011





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