Asia Pacific leads outsourcing market with double digit growth

Contract values jump 30 per cent

Outsourcing growth in the Asia Pacific region was double the global average in 2007, according to the latest TPI Index.

Although the number of contracts signed in 2007 grew by just four per cent, their total contract value increased 30 per cent year over year from US$9.9 billion to US$12.8 billion and annualised revenues showed a 13 per cent increase, nearly double that of the global average.

The average value of outsourcing contracts in Asia Pacific increased by 25 per cent from US$141 million to US$176 million, due largely to increased mega relationship activity in the region, especially in the last quarter of 2007.

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

Outsourcing growth was largely driven by corporations in India and China, according to Arno Franz, partner and managing director of TPI Asia Pacific.

"In this region, 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," Franz said.

"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 among Indian corporations and the potential privatisation of public sector organizations in the next few years, we expect to see this level of activity continue through 2008 and beyond."

At the end of 2007, about 2,700 active contracts delivered around US$80 billion globally in revenue to providers, accounting for a growth rate in annualised revenue of more than seven per cent.

On a global level, Franz said the fourth quarter was the best quarter in 11 years based on contract values.

He said this was fuelled by mega contracts valued at US$100 million or more annually.

The TPI Index mirrors findings released by Gartner last week with the analyst firm forecasting an 8.1 per cent growth rate for the global outsourcing market in 2008.

In Australia, Gartner said outsourcing is expected to grow only 4.7 per cent to reach A$10.9 billion in 2008.

Despite strong growth, Gartner research director, Kurt Potter, said IT sourcing strategies and governance structures are still immature, and misaligned with enterprise objectives.

"In 2007, organisations focused less on outsourcing for cost savings than in previous years and more on using providers' global delivery models to access the right skills at a reasonable price, wherever they are," Potter said.

"In 2008, we expect to see some early adopters of multisourcing to consolidate around fewer providers to reduce their service integration costs and harvest the benefits of better relationship management with fewer strategic suppliers."

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