Asian IT services boast 'strong' 2010

Boosted by over 40 deals signed in fourth quarter, outsourcing contracts in Asia-Pacific region totaled over US$9.5 billion last year but average deal size fell sharply, new report states.
Written by Vivian Yeo, Contributor

Spurred by an unusually high total contract value (TCV) in the fourth quarter of 2010, IT services deals in the Asia-Pacific region churned more than US$9.5 billion last year, according to a new report from Ovum.

In a statement Tuesday, the research firm's analyst and report author, Ed Thomas, said both the global and regional IT services market "exploded into life" thanks to a string of mega-deals inked between October and December last year.

Global TCV reached US$49 billion in the final quarter of 2010. In the Asia-Pacific region, this figure amounted to US$2.6 billion, a 25 percent increase over the same period in 2009. The region's fourth-quarter showing bucked a trend of constant decline in TCV since 2005, the research firm noted.

Jens Butler, Ovum's Asia-Pacific principal analyst for IT services, added that the region had "an exceptionally strong 2010". The Asia-Pacific services industry did not experience a substantial turnaround compared to the previous year, vis-à-vis the global market, but Butler attributed this to the milder impact of the global economic downturn on the region.

According to Ovum, more than 40 outsourcing contracts were inked in the fourth quarter alone, with deals averaging above US$60 million. They included agreements between China Unicom, China Telecom and China Mobile with Alcatel-Lucent, valued at US$1.6 billion, as well as Australian Bluescope Steel's partnership renewal with CSC in an eight-year relationship worth US$300 million.

Smaller, shorter deals
Despite the flurry of large deals in the Asia-Pacific IT services market in fourth-quarter 2011, average contract value for the year dropped to less than US$40 million--a first since 2003. Ovum added that this trend of smaller deals was also evident in the global market.

Butler also pointed to shorter contracts as another concurrent trend in the region, where the average length of deals in January 2011 dropped to below 43 months.

He said the increase in deal size might be "a sign of the releasing of purse strings" but noted that this should be considered "in the context of an ongoing buying cautiousness" across the Asia-Pacific region, as evident from the shorter client-outsourcer relationships.

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