Global TPI Index: Outsourcing Market Posts Slight Dip for 2012 On Weaker-Than-Usual Fourth Quarter
Full-year annual contract value of $21.2 billion, down 3 percent from record 2011
Growth in mega-relationships, record performances for BPO, Asia Pacific lead market
STAMFORD, Conn., Jan. 16, 2013 /PRNewswire/ -- Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company, today released data showing that the global outsourcing market dipped slightly in 2012 on a weaker-than-usual fourth-quarter performance.
The 4Q12 Global TPI Index, which measures commercial outsourcing contracts with an annual contract value (ACV) of $5 million or more, totaled $4.8 billion in the fourth quarter, a drop of 27 percent from the fourth quarter of 2011 and 11 percent from the third quarter of 2012, which was the second-best third quarter on record.
For the full year, the global market's ACV totaled $21.2 billion, a decline of just 3 percent from its record performance in 2011. Leading the market in 2012 were mega-relationships (those contracts with an ACV of $100 million or more); the business process outsourcing (BPO) segment, which had its best full-year performance on record; and Asia Pacific, which also had a record year.
In total, the market awarded 1,006 contracts during 2012, down 13 percent from the previous year but still above the five-year average for awards.
"Fourth-quarter results typically improve on those for third quarters, but this one did not, mainly because it followed such a substantial third quarter," said John Keppel, CMO and President, ISG. "Distractions from elections in the U.S. as well as Superstorm Sandy could partially explain this quarterly drop, as October and November were the lightest months of the year. Still, the market's full-year performance nearly met the record it set in 2011."
The TPI Index, presented by ISG, provides a quarterly snapshot of the sourcing industry for clients, service providers, analysts and the media. For more than a decade, it has been the industry's authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.
The global commercial market awarded eight mega-relationships in the fourth quarter and 34 for all of 2012, the largest full-year total since 2006. For the second straight year, one-quarter of all mega-relationships were awarded in emerging markets. The ACV of mega-relationships fell 50 percent from the fourth quarter of 2011 and 24 percent from the third quarter of 2012. However, mega-relationship ACV for all of 2012 rose 7 percent from the year before.
By scope, the market awarded $1.9 billion in BPO contracts during the fourth quarter, down 1 percent year-over-year but up 5 percent sequentially. Full-year BPO ACV reached $7.9 billion, an increase of 14 percent over 2011. Leading the way were large awards in Industry-Specific BPO and Facilities Management, as well as renewals of several significant first-generation HR Outsourcing contracts.
In contrast, the ACV of contracts for IT outsourcing (ITO) dropped to $2.9 billion, a decline of 37 percent from a year ago and 18 percent from the prior quarter. For the full year, ITO ACV totaled $13.3 billion, a decline of 11 percent. The segment suffered from a difficult comparison with 2011, which included the $1 billion Siemens-Atos mega-relationship. However, the 650 ITO contracts signed during 2012 marked the second-best annual total on record.
By region, the Americas awarded $1.7 billion in ACV during the fourth quarter, a drop of 28 percent year-over-year and 9 percent sequentially. However, the $7.9 billion in ACV signed in the Americas during all of 2012 represented just a 3 percent drop from 2011, despite significant political and economic uncertainty in the region's largest market, the United States. Latin American markets heated up in 2012, as ACV in Brazil and other countries in the sub-region nearly doubled from 2011.
In Europe, the Middle East & Africa (EMEA), fourth-quarter ACV of $2.6 billion was down 29 percent from the year before and 6 percent from the prior quarter. For the year, ACV in the region dropped 12 percent to $10.2 billion but remained within its five-year average. Notably, while the ITO segment in EMEA took a substantial downward turn in 2012, the BPO segment continued a steady climb begun in 2010.
In Asia Pacific, the $500 million in fourth-quarter ACV was flat year-over-year but declined 34 percent sequentially. However, the region tallied a record $3.1 billion in full-year ACV, up 55 percent over 2011 despite significant volatility in the market. While Australia and New Zealand experienced a reversal of recent growth trends, outsourcing by companies in India, China and Southeast Asia reached all-time highs, benefitting from increasing contract values and volume.
Said Keppel: "Looking forward, we see a mixed picture. We note some transaction push-out, but it is not nearly as extreme as when the recession started in 2008. The short-term pipeline appears healthy – and better than ever according to service providers – yet the longer-term view into 2013 has not yet solidified. The sustained BPO performance is encouraging, and renewed positivity in the U.S. market as well as underlying structural trends in the Americas give us added cause for optimism going forward."
ISG presented the 4Q12 Global TPI Index during a conference call for media and analysts today. To listen to an audio replay of the call and view presentation slides, please visit http://www.isg-one.com/web/research-insights/tpi-index/.
About Information Services Group
Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries. For additional information, visit www.isg-one.com.
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SOURCE Information Services Group (ISG)