November 7, 2011: The outsourcing and offshoring market across the globe is witnessing a remarkable drop in the quantum of transaction during the third quarter of 2011, first in the four quarters, according to the Everest group. Everest group is advisory research firm which helps global services giants in improving their performance. The declining market saw 472 outsourcing deals when compared to 508 and 516 in the previous consecutive quarters.
A quarterly report on global outsourcing and offshoring industry, named Market Vista: Q3 2011 reports that the global outsourcing and offshoring transaction volume has reached about $2.7 billion in Annual Contract Value. This shows a 6 per cent increase in the annual contract value when compared to the previous quarter which is as a result of two mega business deals that were signed during the quarter. The market has witnessed a decline of 12 per cent in the Business Process transactions and 7 per cent decline in the IT outsourcing transactions in comparison to Q2 OF 2011.
According to Amneet Singh, Vice President, Global sourcing at Everest, it will take few more quarters to confirm whether this is a temporary decline or the start of another downturn trend.
The transaction activity in terms of volume was lead by the Banking Financial Services and Insurance (BFSI) sector. In addition to this the manufacturing distribution and sale (MDS) sector also demonstrated notable activity in the market. Government and defense organization deals declined significantly, the energy and utilities sector demonstrated notable increase in contractual activities.
During the quarter, three mega deals were signed which is valued at $1 billion individually in terms of total contract value (TCV).
North America and Europe witnessed marginal decline in the transactional and ACV volumes, while the UK and rest of the world witnessed a sharp decline. The captive market in India witnessed increased activity with 20 new centers being introduced during Q3, 2011 when compared to 4 new centers in Q3, 2010. A captive unit refers to a business unit of a parent company, which set up in an offshore location. This reduces the dependency of a company on third party service providers. In India captive unit units are being set up by Pharma and manufacturing companies in addition to BFSI companies.
India will remain to be a favorite location for buyers and outsourcing service providers will continue to grow their capacity to meet the increasing demand.