More AP outsourcing deals, but value drops

Number of outsourcing deals in the Asia-Pacific region grew 9 percent but total contract value fell by 44 percent to US$3.8 billion, states new study.

While more outsourcing contracts were signed across the Asia-Pacific region in the first half of 2008, over 2007, the absence of mega deals meant the total value of these deals were significantly lower.

According to The TPI Index Asia-Pacific, the number of outsourcing contracts with a total contract value (TCV) of more than US$25 million, grew 9 percent across the region in the first half of this year over the same period last year.

However, advisory firm TPI, noted the TCV and the annualized contract value (ACV) of these outsourcing deals were significantly lower than the previous year's. The TCV dipped by 44 percent to US$3.8 billion, while the ACV fell 49 percent in the Asia-Pacific region. ACV refers to the value of the contract divided by its duration.

Arno Franz, TPI's partner and Asia-Pacific managing director, noted in a conference call Wednesday, that the depreciation in value was due to a drop in mega deals inked in the region.

TPI defines a mega deal as one with a TCV of more than US$1 billion, while "mega relationships" are those with ACVs of over US$100 million.

Franz noted that companies in the Asia-Pacific region were taking a "wait and see" stance on the current U.S. economic downturn and how it would fan out in the region.

Despite the lower contract yield, the TPI analyst noted that the region's showing in the index was "not a bad thing" as outsourcing activities were still being conducted.

"What's missing this year is that in the first half of 2007, outsourcing contracts in the region were very large. That's not happening this year," Franz said.

"[However, there is] no more downward pressure on pricing than normal. It is still driven by competition," he added.