A single mega-deal - the Atos acquisition of Siemens IT Solutions and Services - fueled a record surge in global outsourcing market performance during the third quarter, says TPI, an independent sourcing data and advisory firm.
The 3Q11 Global TPI Index, which measures commercial contracts valued at $25m or more, recorded total contract value (TCV) of $25.1bn. The total, the highest-ever for a third quarter, represented an increase of 41 percent over the third quarter of 2010 and 31 percent over the second quarter of 2011.
Excluding the $7.2bn contract awarded by Siemens to Atos in conjunction with its acquisition, the Index tallied 192 contracts worth $17.9bn. That puts the quarter's performance above the average TCV of the five previous third quarters and in line with the previous period.
"This third quarter looks very similar to other third quarters and offers more of a business-as-usual tale than a stunning growth story," said John Keppel, partner and president, Information Services, ISG, the parent of TPI. "Even excluding the Atos-Siemens contract, the underlying market performed at a consistent pace from last quarter."
Now in its 36th consecutive quarter, the TPI Index provides a quarterly snapshot of the sourcing industry for clients, service providers, analysts and the media.
By scope, the TCV of contracts for IT Outsourcing (ITO) increased about 50 percent over the third quarter of 2010 and the second quarter of 2011, driven by the Atos-Siemens mega-deal. Excluding the mega-deal, ITO TCV was down 8 percent both year over year and sequentially.
The value of contracts for Business Process Outsourcing rose 18 percent year over year but dipped 4 percent sequentially. The growth in the value of the largest contracts has helped BPO surpass its full-year 2010 TCV already and the segment is on track for its best annual performance since 2008.
Among industries, Financial Services saw its TCV rise modestly year over year. However, this sector, historically a leader in the outsourcing market, has been slowed by the consolidation that has taken place in recent years, and it looks unlikely to reach last year's annual TCV of $27.7bn.
By region, Europe, the Middle East and Africa (EMEA) saw TCV increase 99 percent over a year ago and 47 percent quarter over quarter. Excluding the impact of the mega-deal, EMEA performance was up 4 percent year over year but down 23 percent sequentially.
The Americas continued its muted performance in 2011 with TCV that was flat year over year and up 11 percent sequentially. The region will need to finish the year with $15bn in TCV to match its 2010 tally, well above its $10bn average in recent fourth quarters.
Asia Pacific TCV dipped about 15 percent year over year but increased 20 percent sequentially, with the majority of contracts awarded in Australia and New Zealand. If they keep up their current pace, both Asia Pacific and EMEA will finish the year within range of their 2010 TCV levels.
"The third quarter witnessed a notable pickup in TCV, stoked primarily by the single acquisition-related contract," Keppel said. "However, underlying market dynamics remain steady and we still project the global outsourcing market should end the year well within the historical norms."
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