According to TPI, 293 outsourcing contracts were signed in 2005,
more than in any other year. Of these 70% were small to medium
sized contracts (those worth $50 – $200 million), up from 65% in
2004 and 61% in 2003.
Whilst Indian providers rarely win deals over $200 million,
below this threshold, in 2005 they were invited to pitch for 30% of
contracts and went on to win 70% of these.
“Indian suppliers have been extremely successful in winning
these deals and then growing the business through additional work
orders,” said Duncan Aitchison, Managing Director of TPI. “However,
with both the Big Six and the Indian providers rapidly expanding
their global operations to meet the increasing demand for
offshoring, the intense competition in this market looks set to
continue.”
The Big Six of outsourcing include Accenture, ACS, CSC, EDS, HP,
and IBM.
The trend to a larger number of smaller single function
contracts and the increasing use of multiple providers is creating
opportunities for a wider range of providers and driving increased
competition, to the benefit of outsourcing purchasers and to the
detriment of the Big Six, says TPI.
The firm found that 34 different providers signed Top 100 deals
this year, up from 29 in 2004 and 20 in 2003. The Big Six won only
53% of the Top 100 deals in 2005, down from 57% in 2004 and 73% in
2003.
Similarly, the Big Six’s market share of major outsourcing
contracts (those valued at over $50 million) fell to 43% in 2005,
down from 49% in 2004 and over 70% back in 2003 and 2002. Twenty
service providers signed four or more major contracts in 2005, up
by a third from 15 in 2004 and part of a steady upward trend.
“TPI’s figures demonstrate the maturity of the market and the
success of a growing number of service providers outside of the
so-called Big Six,” said Aitchison. “An increasing number of
providers are now able to compete for and win deals and this trend
looks set to continue.”
The position of the Big Six is likely to be further hit as
renewal dates for almost $100 billion worth of major outsourcing
contracts draw near.
TPI’s analysis reveals that 325 deals are due for renewal during
2006 and 2007, representing over a fifth of active contracts. The
service providers most heavily affected are IBM and EDS, with a
combined share of $50 billion in contracts coming up for renewal.
The Big Six are the incumbent service providers on 72% of the
contract value to be renewed.
“Although historically, incumbent providers have tended to be
retained almost as a matter of course, the increasing level and
diversity of competition, coupled with a trend towards selective or
single process outsourcing all mean that providers cannot rest on
their laurels,” said Aitchison.
“Client retention will increasingly depend on an incumbent’s
ability to offer a competitive proposition. This could mean
significant changes in price and scope from the original contract,”
he added.
An examination of the deals on which TPI advised in 2005 reveals
that over 70% of contracts were competitive – an all time high and
up by over a third, from 53% in 2004.
A higher percentage of offshore contracts were competitive
(83%), and the share of the market held by the Big Six is falling.
In 2005 they won only 37% of TPI-advised contracts involving
offshoring, down from over half (52%) in 2004.
These figures are particularly worrying for the Big Six as the
offshore market continues to grow, says TPI.
Very little information is available on the breakdown of
outsourcing between onshore and offshore operations. However, an
analysis of deals on which TPI has advised (which represent nearly
a third of the outsourcing contracts let in 2005) reveals that over
half (52%) involved ‘global service delivery’ or offshoring in
2005, a record high and up from 40% in 2004, says the firm.
