Stamford: One European mega-deal — between Siemens and Atos — drove the world's outsourcing market to a record third quarter.
- 3Q11 Global TPI Index recorded total contract value of $25.1 billion, up 41 percent
- Underlying market performance steady with previous quarter, within historical norms
TPI, an Information Services Group company and a leading independent sourcing data firm, says that a single acquisition-related mega-deal fueled a record surge in global outsourcing market performance during the third quarter.
The 3Q11 Global TPI Index, which measures commercial contracts valued at $25 million or more, recorded total contract value (TCV) of $25.1 billion. The total, the highest-ever for a third quarter, represented an increase of 41 percent over the third quarter of 2010 and 31 percent over the second quarter of 2011.
In Europe, the Middle East and Africa (EMEA) TCV increased 99 percent over a year ago and 47 percent quarter-over-quarter. Excluding the impact of the Siemens-Atos deal, EMEA performance was up 4 percent year-over-year but down 23 percent sequentially.
Excluding the $7.2 billion contract awarded by Siemens to Atos in conjunction with its acquisition of Siemens IT Solutions and Services, the Global Index tallied 192 contracts worth $17.9 billion. That puts the quarter's performance above the average TCV of the five previous third quarters and in line with the previous period.
"This third quarter looks very similar to other third quarters and offers more of a business-as-usual tale than a stunning growth story," said John Keppel, Partner & President, Information Services, ISG. "Even excluding the Atos-Siemens contract, the underlying market performed at a consistent pace from last quarter."
Now in its 36th consecutive quarter, the TPI Index provides a quarterly snapshot of the sourcing industry for clients, service providers, analysts and the media. It is the industry's authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.
By scope, the TCV of contracts for IT Outsourcing (ITO) increased about 50 percent over the third quarter of 2010 and the second quarter of 2011, driven by the Atos-Siemens mega-deal. Excluding the mega-deal, ITO TCV was down 8 percent both year-over-year and sequentially.
The value of contracts for Business Process Outsourcing (BPO) rose 18 percent year-over-year but dipped 4 percent sequentially. The growth in the value of the largest contracts has helped BPO surpass its full-year 2010 TCV already and the segment is on track for its best annual performance since 2008.
Among industries, Financial Services saw its TCV rise modestly year-over-year. However, this sector, historically a leader in the outsourcing market, has been slowed by the consolidation that has taken place in recent years, and it looks unlikely to reach last year's annual TCV of $27.7 billion.
The Americas continued its muted performance in 2011 with TCV that was flat year-over-year and up 11 percent sequentially. The region will need to finish the year with $15 billion in TCV to match its 2010 tally, well above its $10 billion average in recent fourth quarters.
Asia Pacific TCV dipped about 15 percent year-over-year but increased 20 percent sequentially, with the majority of contracts awarded in Australia and New Zealand. If they keep up their current pace, both Asia Pacific and EMEA will finish the year within range of their 2010 TCV levels.
"The third quarter witnessed a notable pickup in TCV, stoked primarily by the single acquisition-related contract," Keppel said. "However, underlying market dynamics remain steady and we still project the global outsourcing market should end the year well within the historical norms."