Number, Values of Outsourcing Contract Awards for 2008 Still Expected
to Exceed 2007 Levels
Softness in Demand for Outsourcing in the Financial Services Industry
Continued
HOUSTON, Oct. 15 /PRNewswire/ -- TPI, the largest sourcing data and
advisory firm in the world and a unit of Information Services Group, Inc.
(ISG) (Nasdaq: III, IIIIU, IIIIW), an industry-leading, information-based
service company, today announced a diminished level of worldwide
outsourcing contract awards for the third quarter of 2008. These results,
reflecting commercial outsourcing contracts valued greater than $25
million, and reported via the latest TPI Index, follow three consecutive
quarters of exceptionally high contract award value.
Historically the TPI Index data indicates the third quarter of any
given year is typically the weakest quarter. This was also the case for the
third quarter of 2008, as it exhibited a quarter-on-quarter decline in the
number, total contract value (TCV) and annualized contract value (ACV), or
the value of a contract divided by its duration, in comparison to the first
two quarters of the year.
According to TPI's analysis, several factors impacted the quarter. Only
one mega deal (contracts with TCV greater than $1 billion) was signed,
there was a paucity of mega relationships (contracts in which the ACV is
$100 million or greater), performance in Europe, the Middle East and Africa
(EMEA) declined significantly in TCV levels compared with recent quarters,
and there was a dramatic drop in information technology outsourcing (ITO)
contract value compared with the first two quarters of the year.
In spite of softness in the third quarter of this year, the 2008
year-to-date numbers and values of outsourcing contract awards are
exceeding metrics of 2007. Compared with last year at this point, the
number of contracts awarded has risen almost 5 percent. TCV of those
contracts has grown nearly 19 percent, and their ACV has climbed 27
percent. The full year 2008 looks to be on course for a strong overall
result.
The softness in demand for outsourcing in the global Financial Services
industry -- which began this time last year -- continued through the third
quarter of 2008.
"What we are seeing in the third quarter and year-to-date metrics
represents the results of outsourcing initiatives begun in more stable
times -- compared to the anxiety of recent weeks," stated Brian Smith,
Partner and Managing Director, Financial Services Operations, TPI North
America. "The continued softness of those numbers reflects early
recessionary indicators seen in the beginning of the year. But the
uncertainty and unrest of today's global economic climate has yet to fully
affect the outsourcing industry that serves the Financial Services sector."
In the third quarter, 128 outsourcing contracts valued at $14.4 billion
in TCV and $2.8 billion in ACV were signed in the broader market. Compared
to the second quarter of 2008, the number of contracts dropped 22 percent.
The TCV and ACV both dropped 50 percent quarter-on-quarter. While third
quarters are typically the weakest quarter of a year, the third quarter of
2008 was lower than historical average by almost 20 percent.
Further examining the reasons behind the softness of the third quarter,
TPI reported that after three consecutive quarters of more than $9 billion
each in mega-deal TCV, this quarter saw only one mega-deal awarded, valued
at just over $1 billion -- the last time the industry had one or fewer mega
deals in a quarter was in 1996.
For this quarter, there were only four mega relationships valued in
aggregate at roughly $500 million. Both the number of mega relationships
and their combined ACV declined precipitously quarter-over-quarter.
Earlier this year, strength in the broader market was driven primarily
by activity in EMEA; this was not true for the third quarter. In EMEA, 56
contracts valued at roughly $5.5 billion were signed in the third quarter,
compared with the 75 contracts worth about $18.5 billion during the second
quarter. Additionally, there were 25 percent fewer contracts signed in EMEA
-- and those were of smaller average contract value.
Finally, ITO TCV fell nearly 56 percent from more than $20 billion
signed in the second quarter of 2008.
"It is unlikely that one soft quarter will dampen the overall industry
trajectory, as fourth quarters are typically strong by comparison," said
Peter Allen, Partner and Managing Director, TPI. "A recent announcement of
a mega deal provides early momentum for the fourth quarter, and we see
substantial activity that should allow 2008 to exceed 2007's total
performance of $85 billion." Transactions involving the transfer of certain
back-office operations as part of an outsourcing arrangement are expected
to increase in the coming quarters.
The full-year of 2008 looks to be on course for a strong overall
result, as year-to-date numbers and values of outsourcing contract awards
are exceeding those metrics for 2007. Compared with last year at this
point, the number of contracts awarded has risen almost 5 percent. TCV of
those contracts has grown nearly 19 percent and their ACV has climbed 27
percent.
While TPI anticipates strong fourth quarter award values, the company
believes that current unrest and realignment in the global financial
services industry, and related impact on other industry segments, is likely
to introduce softness in outsourcing contract awards entering 2009. "We
still believe that outsourcing relationships will be called upon to achieve
near-term cost reductions, facilitate restructuring of the industry and
ultimately provide for growth at the back end of the downturn," concluded
Allen.
For more insight into what the future holds for outsourcing within
today's economic climate, visit TPI's blog at:
http://www.considerthesourceblog.com.
About TPI
TPI, a unit of Information Services Group, Inc. (ISG) (Nasdaq: III,
IIIIU, IIIIW), is the founder and innovator of the sourcing advisory
industry, and the largest sourcing data and advisory firm in the world. We
are expert at a broad range of business support functions and related
research methodologies. Utilizing deep functional domain expertise and
extensive practical experience, TPI's accomplished industry experts
collaborate with organizations to help them advance their business
operations through the best combination of business process improvement,
shared services, outsourcing and offshoring. In addition, TPI Momentum, a
business unit of TPI, provides information and insights to outsourcing and
offshoring service providers to help them provide enhanced services to
their sourcing clients. For additional information, visit http://www.tpi.net.
About Information Services Group, Inc.
Information Services Group, Inc. (ISG) (Nasdaq: III, IIIIU, IIIIW) was
founded in 2006 to build an industry-leading, high-growth,
information-based services company by acquiring and growing businesses in
advisory, data, business and media information services. In November 2007,
the company acquired TPI, the largest independent sourcing advisory firm in
the world. Based in Stamford, Conn., ISG has a proven leadership team with
global experience in information-based services and a track record of
creating significant value for shareowners, clients and employees. For
more, visit http://www.informationsg.com.
SOURCE TPI
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Related links:
http://www.considerthesourceblog.com
http://www.informationsg.com http://www.tpi.net
CONTACT:
Todd Miller, Market Communications of TPI,
+1-480-235-7018, todd.miller@tpi.net; or Laura Bower of
Peppercom, +1-212-931-6127, lbower@peppercom.com
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