Global market hit by 'DIY' offshoring bug

Offshoring to a wholly owned captive operation is on the increase, leading to a slowdown in outsourcing activity

The increase in the number of organisations setting up their own "DIY" offshore operations in countries such as India is responsible for the slowdown in the global outsourcing market.

The value of new outsourcing contracts globally has risen by just six percent for the first half of 2007 compared to the same period last year, according to the latest quarterly market update from outsourcing advisers TPI.

The slowdown is particularly bad in the US where the value of new contracts is down by almost 50 percent this year, with only €6.3bn (£4.3bn) of contracts for the first six months of 2007 — the flattest six months of outsourcing activity in the US since 1994.

Duncan Aitchison, managing director at TPI, said in the quarterly update that part of the reason is a rise in the number of organisations doing "DIY" offshoring.

He said in the quarterly update: "We believe the slowing of growth in the global outsourcing market is driven by the fact that offshoring to a wholly owned captive operation, or tactical out-tasking of small, discrete processes, is currently considered an alternative to outsourcing by some client organisations looking for short-term cost savings."

Offshore IT outsourcing is also still on the increase and the TPI figures show 59 percent of deals in the first half of the year had at least partial offshore delivery.

But the overall global market slowdown is not reflected in Europe where the total value of new outsourcing contracts in excess of €40m (£27bn) for the first six months of 2007 is up 78 percent on the same period last year at €12.3bn (£8.3bn).

The increase is on the back of growth in the continental European market in Belgium, Denmark, Finland, Italy, Norway and Switzerland, and Europe now accounts for more than half (54 percent) of new outsourcing contracts signed globally.

Much of this demand is coming from the banking sector. Globally, financial services is still by far the largest private-sector market for outsourcing, accounting for more than a third (35 percent) of total contract value this year.

The increase in Europe has also been driven by five "mega deals" totalling €5.3bn (£3.6bn) and four of these deals have been for network, rather than pure IT, outsourcing.

This demand for network outsourcing has pushed some of the telecoms providers such as BT up the overall global outsourcing rankings. The "big six" outsourcers — Accenture, ACS, CSC, EDS, HP and IBM — accounted for just 10 percent of the €7.8bn (£5.3bn) global spend on "mega deals" in the first half of this year.


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