Financial services, government sectors drive outsourcing

The two verticals dominated the outsourcing contract scene last year, and are expected to continue to do so over the next two years, finds a report from IDC.

The financial services and government sectors will drive the major outsourcing contract scene over the next year or two in the Asia-Pacific region, IDC has found.

According to a report from the analyst company, these two verticals accounted for over 50 percent of the total contract value of publicly announced deals last year, and are expected to continue pushing the industry--examples IDC mentioned included IBM's IS outsourcing contract with Westpac Banking Corporation Australia and EDS' contract with the Australia Taxation office, both expiring in 2010.

IDC said it believes offshoring outsourcing is high on Australian organizations' agendas as they look to bring down the cost of outsourcing contracts.

IDC projects outsourcing deals from the government sector to hit US$615 million next year and a higher US$906 million in 2010.

Contract deals from the financial services industry, in particular, are projected to hit US$763 million next year and a much higher US$3.56 billion in 2010.

The report identified a shift from "single-vendor outsourcing" to multi-sourcing deals, also as a measure to drive down price by diversifying the work across multiple service providers.

IDC highlighted Singapore's ongoing Standard ICT Operating Environment (SOE) project as an example of the government taking a "multi-sourcing approach". Four consortia made up of multinational corporations and local companies vied for the S$1.3-billion (US$965-million) project, which was eventually awarded to EDS-led oneMeridian.

Emily Tee, senior market analyst at IDC Asia-Pacific's IT services research division said: "This multi-sourcing trend [will] create more complex contract structures in the outsourcing market, resulting in reduced length and value of deals as well as increased number of contracts per client."

Mid-range deals are expected to dominate the market over the next two years, with at least 30 outsourcing contracts each having a renewal value in the range of US$50 million to US$300 million in the region, said IDC.

"This will create more opportunities for the 'services aggregator'," Tee said, adding that more vendors are eyeing this role of providing a central contact point to clients for a myriad outsourcing providers.

Additionally, IDC noted that the Indian players are playing a greater role, having won more contracts last year compared with 2006--in 2007, India's Satyam won a Singapore government agency contract and HCL won a deal with the Commonwealth Bank of Australia, IDC said.