Outsourcing transactions slow

This fall was largely due to decreased transactions in the second half of the year, according to Everest Group, which noted that, after a strong start volumes dropped in the second half of the year including fourth quarter activity numbers that were the lowest since Q1 2009.

Although captive activity also dropped in the second half of last year, 2011 saw captive set-ups almost double in number compared to 2010, Everest Group’s reports, Market Vista: 2011 in Review and Market Vista: Q4 2011 noted.

“In 2011, the first two quarters showed a continuation of the upward, positive market traction we began to see in 2010, but activity dropped during the last two quarters, levelling out the year and thereby resulting in almost a repeat of the previous year,” said Eric Simonson, Everest Group’s managing partner of research.

“We also saw strong captive activity in the first two quarters of 2011, which further validated our firm’s long-held opinion and research findings that the captive model can be a viable core component of sourcing strategies for many organisations. Our 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.”

He added that 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 market’s total annual contract value (ACV). IT Outsourcing (ITO) contracts accounted for two-thirds of total transaction activity; 32% were Business Process Outsourcing (BPO) contracts.