Indian IT Companies Still Lead Outsourcing Pack

The country had over the years "assumed a leadership position as a lower cost destination for servicing the back office needs of major global corporations" but recent events such as the terrorist attacks in Mumbai and Satyam accounting scandal have threatened this, said Arno Franz, partner and Asia-Pacific president at TPI.

Franz touched on the country in a telephone briefing Wednesday on the region's outsourcing developments in the second-half and full-year 2008, also known as TPI Index Asia-Pacific.

"While the attacks in Mumbai did not target the outsourcing industry, we know that companies that have captive operations or outsourcing providers in India took note of the potential for disruption to their operations," he said.

But even though other markets will be "redoubling efforts" to seize opportunities from India, "no other country yet presents a serious threat as a key outsourcing destination", said Franz.

"China is still very much an emerging destination, while it is debatable whether any other single country has the breadth and depth of skills, experience and infrastructure to seriously challenge India's position," he explained.

In 2008, India-based providers made significant market share increases, Franz reported. In terms of total contract value (TCV), Indian outsourcers contributed 16 percent of the global market, up from 11 percent in 2007. They also accounted for over half of the Asia-Pacific outsourcing TCV—a first for the Index.

Another indication of the country's strength in the region's outsourcing landscape is that two out of the three mega-deals in the second half of 2008 went to India-based providers. Mega deals, defined by TPI as contracts worth over US$1 billion, numbered 12 between January and June last year.

Over the year, there was a record of 88 contracts in the region with a total contract value of over US$25 million, 50 of which were awarded in the second half. Despite the high number, the 2008 TCV of Asia-Pacific outsourcing deals was US$12.3 billion, lower than 2007's US$12.7 billion. Annualized contract value (ACV), which is the contract value divided by its duration, also fell from US$2.7 billion in 2007, to US$2.4 billion last year.

Globally, TCV registered nearly US$90 billion, while ACV reached a record high of US$17.6 billion. TPI typically covers commercial outsourcing contracts that are valued over US$25 million.

Moving forward, 2009 is expected to be a "defining year" for outsourcing, said Franz. New contract awards in the first half of this year will be affected by the recession, as well as "lingering effects of the Indian market challenges". Industry players in the region, however, will be prepared to respond to the market conditions and step up efforts to help clients "find near-term cost realignment opportunities".

"The transactions may be more piece-meal in nature than big, multibillion-dollar transformation deals. As a result, we expect that the adoption of outsourcing in the first half of 2009 measured by TCV levels will be softer than last year," he noted, adding that it is still early to tell how long this hesitation in awarding larger-value contracts, will last.

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