By Paul Reynolds, Director and Chief Research Officer, Momentum
A record amount of outsourcing contracts were issued in 2011, and an increasingly diverse set of service providers shared in the bounty. The 2011 MomentumTM Market Trends & Insights series Annual Report took an in-depth look at what drove the record level of contract awards and found that emerging business needs and classic outsourcing drivers fueled the demand, which is expected to remain strong.
Here are the Top Five findings from the new Annual Report:
- Record levels of outsourcing contract activity – There were a record 870 outsourcing contracts worth $25 million or more valued awarded in 2011, the most ISG has ever recorded. The collective value of these contract awards was $95.4 billion, which was close to the single-year record. ISG expects 2012 to be another very active year for outsourcing contracting that will provide good growth opportunities for service providers of all sizes.
- Expiring contracts renew competition – The ever-increasing volume of expired contracts continues to offer a healthy renewal market for service providers. A record 572 outsourcing contracts expired in 2011. When contracts were renewed or replaced last year, clients often introduced or expanded multisourcing, changed the scope of services, and sought cloud technology. In 2012 there are 686 contracts collectively worth $19.5 billion due to expire, ensuring that expiring contracts will remain a major component of the outsourcing market.
- G2000 churn creates new hunting opportunity – Since 2004, 2,291 firms have entered and/or dropped off the Forbes Global 2000 (G2000) ranking of the world’s largest public companies. Companies that are not currently in the G2000 but have been ranked before are about half as likely to outsource as those ranked 1,501 to 2,000 on the current Forbes list. However, the former G2000 firms that do outsource spend more on average than the lowest quartile of the current G2000 and thus represent good prospects for service providers.
- BPO market on the rise – The average total contract value (TCV) increased for seven out of 10 BPO service lines. There were a record 336 BPO contracts awarded in 2011, with both the average contract value (ACV) and TCV of these awards rising sharply from the previous year. The ITO market remained much larger but had little momentum. ITO contract award volume rose in 2011, but TCV and ACV each declined.
- Asia Pacific’s growth in prominence – APAC has emerged as a growth market and is headquarters to more Forbes G2000 companies than any other region. China produced 31 of the companies that were new to the G2000 in 2011, the most of any country. As the region grows, so do its outsourcing prospects. ITO and BPO contract award volumes both increased in the Asia Pacific region in 2011, although ITO spending was less than in 2010.
The complete 2011 MomentumTM Market Trends & Insights Annual Report covers contract award volumes, market spending, contract sizes and service provider market share at the global, regional, ITO, BPO and specific service line levels and summarizes captive center trends and service provider M&A activity. Contact the author at firstname.lastname@example.org to learn more.