The July-September quarter, which is the third quarter for most Western companies that offer business to India's software and allied service industries, saw a decline in global outsourcing contracts both in terms of volume as well as value compared with the same quarter last year, says Technology Partners International, Inc. (TPI), a company that advises global corporations on outsourcing strategies.
TPI said the BPO business worldwide is expected to grow by roughly 10 per cent year-on-year on account of a large number of contracts valued at less than $25 million. Although the total contract value was lower, BPO had a great deal of activity in the third quarter with 58 signed contracts — an increase of more than 23 per cent quarter-on-quarter and more than 26 per cent year-on-year.
A large number of outsourcing deals were awarded with seven-to-10 year durations about a decade ago, and are now in the process of winding up or re-negotiation. Since 2001, the average duration of a contract has decreased by 12 per cent, TPI said. In information technology outsourcing, it has fallen by 18 per cent, while in business process outsourcing (BPO) it dropped 5 per cent, TPI said in its latest quarterly study on the industry.
Contract values shrunk in line with their duration, especially in IT contracts, TPI said. IT outsourcing is often billed by the hour, and shorter duration of work leads to lower revenues.
Contracts can involve different types of work, such as processes in accounting or payroll management. Fewer multi-process contracts have been signed so far in 2006 than in each of the past three years. There have been only seven so far this year compared with 20 in all of 2004 and 11 in 2005, TPI said.
“There have been an increasing number of smaller, single-process contracts in recent years. This trend holds true for both BPO and ITO contracts,” said Siddharth Pai, the managing director of TPI's Indian unit.
An unprecedented percentage of contract restructuring involving shorter duration contracts also contributed to smaller deal values, TPI said.