Wednesday, January 23, 2008

Outsourcing EMEA outpaces Americas


New data from outsourcing advisory firm TPI offers more evidence that the economic winds have shifted. The Woodlands, Texas-based firm, which helps companies structure large outsourcing deals, reported Wednesday that the total value of outsourcing contracts declined 5% in 2007 as compared with 2006 -- the lowest level in five years.

In addition, for the first year on record, Europe, the Middle East and Africa (EMEA) outpaced the Americas in outsourcing activity, both in total contract value and in the number of contracts awarded, TPI said in a conference call with reporters and investors.

Indeed, for the first time, the EMEA countries account for more than half the global outsourcing contract value tracked by TPI.

The firm's latest numbers are based on contracts of $25 million or more, as opposed to its previous cutoff of $50 million. The move reflects the growing number of contracts falling in the $25 million to $49 million range.

The numbers

Despite a strong fourth quarter, the total value of outsourcing contracts in 2007 dropped 5% year over year, to $80.4 billion in 2007 from $84.7 billion in 2006.

TPI President Scott Gildner said that for the "first time in a long time," the absolute number of contracts awarded also declined year over year, from 556 contracts in 2006 to 487 contracts in 2007 -- a 12.4% drop.

The firm, however, cautioned market watchers not to read too much into the lower numbers.

On the basis of annualized revenue, 2007 "fared all right," said Peter Allen, chief marketing officer at TPI. Annualized revenue, as measured by TPI, represents the dollars that go into the pockets of service providers from all active contracts, factoring in prior awards and any known terminations of contracts. At the end of 2007, TPI identified about 2,700 active contracts in the marketplace delivering almost $79 billion in revenue to providers. That marked a growth rate of about 7%, "well above" the five-year compound annual growth rate of 5.3%, said Allen, who gave his take on the numbers in his blog.