Outsourcing is showing signs of slowdown: Everest

The global outsourcing market seems to be going through a sluggish phase, showing signs of slowdown, as number of deals signed during the July-September quarter this year dropped to 472 from 503 deals in Q3 2010.

According to advisory and research firm Everest, the number of outsourcing worldwide reduced to 472 in Q3 2011 from 503 in Q3 2010 and 516 transactions in Q2 2011.

"The global outsourcing market is going through a sluggish phase, marked by a drop in transaction volumes and new deal signing. This has been the first significant decline in the number of transactions in four quarters," Everest Vice President (Global Sourcing) Amneet Singh said.

However, the global transaction volumes reached about USD 2.7 billion in annual contract value (ACV) in Q3 2011, up six per cent quarter-on-quarter, primarily due to signing of a few large size contracts, he added.

Asked about the quarters ahead, Singh said, "While there are some signs to show that the global outsourcing and offshoring market is beginning to slow down, it is still early to comment on how the overall global market scenario will shape up".

"We will need to see a few more quarters to determine if this is a momentary blip or the beginning of a downturn trend," he added.

Transaction volumes fell in both IT outsourcing and BPO markets by seven per cent and 12 per cent,

respectively.

However, the ACV for IT outsourcing increased 14 per cent in Q3 2011 q-o-q, while for BPO it was down by 50 per cent sequentially.

The Banking Financial Services and Insurance (BFSI) sector continued to lead transaction activity, while manufacturing, distribution and retail (MDR) segment also saw meaningful activity, Everest said in its 'Market Vista' report.

However, there was a notable reduction in public sector deals with 31 per cent decrease in volume and 48 per cent dip in ACV.

North America and Europe witnessed marginal reduction in transactions, while the UK and rest of world (RoW) saw significant decline of 22 per cent and 15 per cent, respectively.

There was also increased activity in the captives as 20 new centres came up in Q3 compared to 4 new centres and 9 expansions in Q3 2010.

A captive unit is a business unit of a company functioning offshore, retaining the work and close operational tie-ups within the parent company.

"Earlier it was mostly the banking and financial services which were setting up captives, but now we see newer verticals like pharma and manufacturing also setting up centres," Singh said.

Also, there is additional work and new geographies being looked at for these captives, he added.

On India, Singh said, "From an India perspective, the country remains competitive as an offshore delivery location with buyers and service providers continuing to establish delivery centres in multiple cities in India".