Asia-Pacific has been the only region to show growth in the business process outsourcing (BPO) market in the first half of 2007.
India-based multinational service providers like IBM, HP, Capgemini and Accenture have won close to 30 per cent outsourcing contracts so far in 2007. The sourcing advisory group, TPI, projects that business deals worth around $16.8 billion could be in the pipeline. Transactions worth up to $2 billion may be announced in the next three months, it says.
Eight BPO contracts, in the $25 million or bigger category, with a total contract value of $700 million, were signed in Asia-Pacific in the first half of 2007, representing a growth of 33 per cent by volume and 133 per cent by value over the first half of 2006.
According to the latest quarterly index from TPI, India emerged at the helm of the market with the largest number of outsourcing contracts for 2007. Siddharth Pai, partner and managing director, TPI India, says, "India came ahead of Australia and Japan, which have been its close competitors in the Asia-Pacific outsourcing market."
But he cautions that the rise of the Indian outsourcing market to the top slot can be seen as "a temporary phenomenon" as other traditional outsourcers such as Australia and Japan can easily bounce back.
Asia-Pacific's outsourcing market has been deemed relatively immature in contrast to the US and European markets. However, there are signs that it has steadied. TPI indicates that the strong growth in Asia-Pacific and Europe is compensating for a very soft US market, where new outsourcing business is at its lowest level since 1994. The 27 contracts awarded in the US during the first quarter represented the lowest number of quarterly contracts awarded since 2001.
The total value of new (as opposed to renewed or restructured) outsourcing contracts in Asia-Pacific (in the $25-million-plus bracket) totalled $5.4 billion, marking a 100 per cent rise over the first half of 2006. "The Asia-Pacific's performance is in sharp contrast to a modest overall global increase in new business of just 6 per cent in the first half of 2007," Pai says.
Players like EXL Services who have keenly played an active role in the US and the European markets are now turning towards Asia-Pacific. "We are targeting companies that are our international clients and have a presence in India," informs Rohit Kapoor, president and COO, EXL Services, provider of offshore business process outsourcing solutions.
The company is in "advanced stages" of talks with a global insurance major that wants to outsource its back-office processes to India. "They are our international clients and we will be working for them in India too," Kapoor said. During the quarter, EXL secured two new contracts, including a finance and accounting contract with a Fortune 500 transportation company, and benefited from growth in several existing client relationships. The BPO business line comprised 82 per cent of its revenues for the second quarter and grew 57.5 per cent year over the last year.
Average total contract value (TCV) per contract during the first half of 2007 for a new business was $245 million, up more than 20 per cent from the average in 2006, according to TPI. Over the last five years, the financial services sector has accounted for 28 per cent of global TCV for contracts valued at over $25 million. In the first half of 2007, despite a 34 per cent share of global TCV, the financial services sector accounted for just 9 per cent of Asia-Pacific TCV.
"The telecom sector has been the largest sector for outsourcing, taking 46 per cent share of TCV in the first half 2007, compared with a 33 per cent average in the previous five years," claims Pai.
Other sectors showing increased outsourcing activity in the region in 2007 include manufacturing (26 per cent share) and energy.