Global outsourcing market sees slowdown

Total value of first-quarter outsourcing contracts is down from 2006, partly because of a decline in US contracts

The worldwide outsourcing market is experiencing a slowdown, with the total value of contracts awarded in the first quarter of 2007 down by a third compared to the corresponding period last year.

The quarterly figures from outsourcing advisors TPI show the total value of outsourcing deals signed in the first three months of the year was $17.6bn, compared to $25.4bn a year earlier — the lowest first-quarter figure for five years.

One of the reasons for the slowdown is the fall in the number of US companies outsourcing their IT. The TPI figures show a dramatic drop of 70 percent in the value of US outsourcing contracts for the first quarter of 2007, to $5.2bn.

Duncan Aitchison, managing director of TPI, said in the report: "Contract awards worldwide have got off to a much slower start this year than traditionally seen in the first quarter, portending a softer outsourcing market for all of 2007, continuing the slowdown of the global outsourcing market which first became apparent in the second half of last year."

But TPI is still predicting modest growth of around four percent in the outsourcing market in 2007 in terms of the total value of contracts awarded.

Despite the decline in the US market, Europe and Asia-Pacific are both still experiencing strong growth. Outsourcing activity in Europe for the first quarter of the year was up by two-thirds compared to 2006, with $9.7bn-worth of contracts signed, while Asia-Pacific experienced a 30 percent rise, to $2.1bn.

The shift in market activity from the Americas to Europe is largely due to the maturity of the US market, but Aitchison said the significance of these developments should not be underestimated by outsourcing suppliers. "Europe will become increasingly important to the service-provider community," he said.

The level of business process outsourcing (BPO) has also declined, with the lowest number of deals in the first quarter for five years. TPI predicts the BPO market will grow at just two percent this year — well behind the double-digit growth seen in recent years.