Year in review: AP sourcing market 2006

After returning from a long break, during which the dust has settled with regards to market data from 2006, it seems useful to review last year's Asia-Pacific sourcing market.

Overall, 2006 was the "best" in the last five years in terms of TCV (total contract value) and number of new contracts. Some of the key statistics for the year for commercial contracts (both IT and business process) with a TCV of more than US$25 million were:

• The number of contract awarded increased by 43 percent over 2005 to 77 contracts;
• The TCV also increased by 67 percent over 2005 to US$10.7 billion; and
• ACV (annualized contract value as discussed in an earlier entry on this blog) of these deals, up 57 percent over 2005.

In addition, the number of contract restructurings was at its highest ever, with the TCV of these restructurings up 252 percent over 2005.

Splitting this market into those deals with a TCV of more than US$50 million and those between US$25 million and US$50 million, highlights how the overall market is still driven by the larger deals. The total US$10.7 billion was split as US$10 billion for the 45 contracts with a TCV of more than US$50 million and US$700 million for the 22 contracts with a TCV between US$25 million and US$50 million.

Breaking this data down by country, shows that three countries are driving the region. Eighty-five percent of the TCV comes from Australia, Japan and India, and this level is essentially unchanged over the last three years. No other country has a TCV market share above 4 percent.

Looking at annualized revenue shows a similar pattern. Australia, Japan and India account for 88 percent of the region's annualized revenue which, again, is consistent with value numbers over the last three years. Increased activity in other countries has yet to translate into bigger market share.

So, what does this tell us overall? I would suggest that:

• While an upward trend is evident, the lumpiness of the growth year-on-year, at both the country and regional level, suggests a market that is still maturing;
• Service providers will continue to focus on the major markets of Australia, Japan and India. Long term, if they are not present in all three markets, they will struggle to maintain a sustainable presence in the region; and
• Cross-fertilization of ideas will continue to struggle, given both the language and cultural differences of the three key markets within the region.

For full details of the 2006, see the Web site www.tpi.net.