A study by Everest group revealed that more than US$85 billion IT outsourcing (ITO) and Business process Outsourcing contracts are about to expire in next 18 months. The study was published by a leading advisory and research firm for global services, Everest Group. Large contracts were signed before the economic slowdown struck US. As a result, contract deals more than US$55 billion of the total contract value (TVC) will expire in next 12 to 18 months
Data center, infrastructure and network deals, build up the main portion of ITO contracts expiring in the near future. The development of new technologies such as cloud computing that offers complete solutions for the businesses will be a new challenge for the existing service providers. The service providers in this scenario must understand the buyer’s preference or they will struggle for the renewal of deals.
Highlights from the report:
- The banking and manufacturing industry lead in ITO contracts that are about to expire and manufacturing and healthcare industry leads in BPO contracts that are coming to an end.
- North America stands at the top when it comes to IT and BPO renewal deals in next 12 months while Western Europe leads in IT and BPO contract renewals for the coming 6 months.
- Infrastructure deals contribute to the largest ITO contracts expiring in next 12 to 18 months in North America and Western Europe.
- Human resource outsourcing and contact centre contracts constitute the major portion of BPO contracts that are expiring in the next 12 months.
- Defense and public sectors will see more than US$25 billion contracts expiring in next 18 months out of which US$20 billion of TVC contracts will expire in the next 12 months.
Factors influencing future ITO/BPO renewals as detailed in the report.
- Cloud computing has gained popularity in the outsourcing industry which may influence the decision making of the companies regarding renewing the contracts.
- The buyers are searching for more rather than just cost saving. This will require the service provider to offer innovative solutions to them.
- Remote Infrastructure management outsourcing (RIMO) has attained a steady growth and is now widely adapted by many companies.
- The renewal deal closure will also get affected by new trends in outsourcing. Pricing offered by the service providers and the importance given to analytics is all bound to influence the renewal of the deals.
The report also forecast the size of the contracting deals that will be renewed in the next 12 to 18 months. On account of the economic slowdown around the world, it is anticipated that the size of the contracts will be less when compared to previous years, but the number of small contracts may increase.
To know more, please access the report from here.