Tuesday, January 22, 2008

Outsourcing industry rebounds

Source: Echannelline.com

Despite fear of a recession in the U.S., jitters on virtually all major stock exchanges worldwide and widespread cut-backs in corporate spending, EquaTerra's 4Q07 Pulse surveys revealed that outsourcing demand is rebounding, with continued strong growth in EMEA and a substantial increase in North America. In fact, 70 percent of EquaTerra advisors cited increased demand levels for Information Technology (IT) and business process outsourcing in 4Q07, with demand up 19 percent over 3Q07, up 24 percent over 4Q06, and at the highest level recorded since 2Q05. Further, 59 percent of service providers cited new deal pipeline growth in 4Q07, and 57 percent expect demand to increase in 1Q08. EquaTerra attributes the increase in outsourcing demand levels to a variety of factors including: Weak economic indicators: Although expense reduction isn't the only driver for outsourcing, many organizations are reemphasizing outsourcing to increase their bottom line; New functions outsourced: Buyers are focusing on new and growing areas like legal and knowledge process outsourcing, document and electronic records management, industry specific offerings and knowledge intensive services; Service provider readiness: EquaTerra advisors are seeing some improvements in overall service provider capacity, in part driven by improved pricing and contracting terms; Smaller, more numerous deals: The outsourcing market continues to evolve with more but smaller deals spread across a greater number of service providers and delivered on a more global basis.

Said Stan Lepeak, EquaTerra's Managing Director of Research, "While the current state of the economy is forcing Western commercial enterprises to cut budgets for capital investments and many types of discretionary business and IT services, the projection for outsourcing investments remains positive and is improving. This highlights the importance of outsourcing as a tool for cost reduction and avoidance, as well as the ongoing broadening of the outsourcing footprint beyond traditional BPO and ITO areas. Although the outsourcing market will remain choppy over the next two to three quarters at the individual buyer and service provider level, demand growth will increase at the macro level. It is important to note, however, that the outsourcing demand improvements we saw in 4Q07 will for the most part not result in new deal closings until late 2008 and into 2009."

Based on the 4Q07 Pulse Surveys, several EquaTerra research studies and client interaction, following are some anticipated 2008 trends: Outsourcing will continue to be recession-proof; Public sector demand will continue to grow, and shared services and internal transformation in this sector will get stronger; Recent turmoil in credit markets will selectively slow outsourcing in the financial services sector in the short term but drive more ITO in the long term.