Large Contract Restructurings Lifted Outsourcing Market in First Quarter
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Enterprise Resource Planning (ERP) Archives
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April 28, 2010 11:30 AM
In last quarter’s TPI Index, I was happy to report that the market which had bottomed in the first half of 2009 had made a turn in the second half, signaling the beginning of a gradual recovery in the outsourcing industry. In today’s 1Q10 Global TPI Index, we reported that total contract value (TCV) rose 25 percent from the first quarter of 2009, but the underlying market is recovering slowly and unevenly.
Contract restructurings, in which clients renewed, renegotiated or expanded existing contracts, were the real reason for the growth in the first quarter of 2010. Restructurings accounted for 42 percent of TCV, far surpassing the previous record of 29 percent set in 2006, and greatly impacted Americas and Europe, Middle East & Africa regional performance.
Restructurings also fueled the growth in IT outsourcing (ITO), which expanded 46 percent, with particular strength in Application Development & Maintenance (ADM) and ADM-plus-Infrastructure contracts. In addition, three of the four mega-deals awarded in the quarter were ITO restructurings.
Looking ahead, TPI anticipates that contract restructurings will continue to have an impact on the outsourcing market. Between $10 billion and $12 billion in annual contract value due to expire in 2010 will be renegotiated, up 20% to 25% from where the industry stood last year.
We don’t expect a huge rush of new-scope contracting. Instead, we foresee a steady flow of new opportunities as the recovery continues at a slow pace.
Check out the full 1Q10 Global TPI Index presentation or listen to the replay at 800-332-6854 (Replay Conference ID: 231877).
Originally posted by Mark Mayo, Partner & President, TPI Global Operations, TPI on Consider the Source
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