Apac region driving outsourcing growth: TPI

Fuelled by increased demand from corporations based in India, the outsourcing market in the Asia Pacific grew substantially in 2007 according to the latest TPI Index from sourcing advisory firm TPI.

Outsourcing in Asia Pacific saw its second consecutive year of strong growth and showed an increase in demand across all measures.

Though the number of contracts signed in 2007 grew by just 4 per cent, the total contract value increased 30 per cent year-on-year from $9.9 billion to $12.8 billion. Annualised revenues showed a 13 per cent increase, nearly double that of the global average.

"Asia Pacific was the only geography to show an increase across all of these measures. The average value of outsourcing contracts in Asia-Pacific increased 25 per cent from $141 million to $176 million. This is largely due to the increase in mega relationship activity in the region, especially in the last quarter of 2007," said TPI India MD Siddharth Pai.

The region showed particular strength in mega relationships with nine signed in 2007 at a value of $1.5 billion.

"This represents one-third of the mega relationships globally and contrasts sharply with the region's overall share of one-sixth of the global outsourcing market. Large contracts have become popular among Asian companies," he added.

In addition to this, BPO performance in the Asia Pacific was strong in 2007. BPO's total contract value (TCV) in the region soared 101 per cent, yielding the best year ever for BPO contract values in the region and leading to the average BPO contract value rising 81 per cent.

Outsourcing growth in the Asia Pacific was largely driven by corporations in India and China. Countries traditionally known for their provision for outsourced resources are becoming buyers of outsourcing. India has seen stepped up outsourcing activity within the telecom and financial services sectors whereas growth in China has been strongly influenced by a single telecom mega deal.

Pai noted: "In Asia Pacific, we usually see Australia, India and Japan topping the list of countries buying outsourcing services. In 2007, India led the pack by almost doubling the value of its outsourcing work year-on-year. It appears that, fuelled by a booming economy, Indian industry in particular has found outsourcing to be a viable tool to improve performance and drive growth in market share. With increased competition amongst Indian corporations and the potential privatisation of public sector organisations in the next few years, we expect to see this level of activity continue through 2008 and beyond."

Alongside increased domestic demand for outsourcing, the Indian service providers' share of global contracts continued to expand in 2007, up from 6 per cent share in 2006 to 9 per cent in 2007. "No other category of service provider increased market share at such a pace. Their share of the regional market also increased strongly, from 11 per cent to 16 per cent," he pointed out.

On a global level, the fourth quarter was the best quarter on an annual contract value (ACV) basis in 11 years. The fourth quarter TCV was fuelled by the strength in mega-relationships, those transactions with an ACV, or an average annual value, of $100 million or greater.

Additionally, the fourth quarter included some large BPO contract awards, which elevated the 2007 BPO TCV to the same level seen in 2006, despite fewer BPO contract awards.

In 2007, 171 BPO contracts worth over $23 billion were awarded globally. The awards in the fourth quarter represent 23 per cent of the year's total number but 40 per cent of the year's TCV.