Basic drivers of global outsourcing remain intact

A worldwide survey on outsourcing shows there were 12 “mega deals” in 2008 for a total contract value (TCV) of $17.1 billion (bn), compared with $12 billion for 2007, despite the slowdown in the global economy. The number of reported outsourcing mega deals awarded to a single service provider in 2008 was 12, an increase from 10 in 2007, said Gartner, the research and analysis firm.

A mega deal is worth more than $1 bn. And, while 2008 saw an increase in the TCV of such deals over 2007, it is still lower than the amounts realised prior to 2007.

“While outsourcing held up in 2008, we expect to see a slowdown in contract signings during the first half of 2009 and possibly extending into the third quarter, largely due to the tightening of IT budgets in the fourth quarter of 2008 and slow loosening of budgets in early 2009,” said Allie Young, vice-president and analyst for Gartner.

“Long sales cycles for outsourcing are the norm, depending on the complexity, scale and scope of the deals, which may lead to delayed signings. However, organisations with approval to outsource, and desperate to save money, may seek to move rapidly and shorten some steps of due diligence just to get the deal into place,” she said.

The largest IT outsourcing (ITO) or business process outsourcing (BPO) contract signed in 2008 was for a TCV of $2.5 bn. There were two of these deals, one of which was awarded to Tata Consultancy Services.