Europe leads outsourcing market in first half of 2007, Asia-Pacific BPO market bucks global trend

TPI has released data on contract activity in the private sector outsourcing market for the first half of 2007. Overall, TPI says the market is 'restrained' - particularly in the Americas. The global outsourcing market has declined in terms of both the number and value of contracts signed in the first half of 2007. The total number of contracts awarded in the first half of 2007 was the lowest since the same period in 2003, with the lowest contract value since 2001. However, excluding contract renewals, the value of the outsourcing market (i.e. just new scope deals) is actually up by 6% on the previous quarter. In other words, there are less renewals contracts being re-bid on the open market.

For contracts worth greater than €40m, the European market is out-performing both the Americas and Asia-Pacific, accounting for more than half of the total contract value in the first half of 2007. The index also revealed that new contracts in Europe accounted for about 54 percent of the total number of new contracts awarded worldwide in 1H 2007. The total worth of the new contracts awarded in Europe increased by 78 percent in 2007 over 2006. In addition, the study revealed that Europe accounted for about 67 percent of the total number of mega deals (worth EUR 7.8 billion) awarded worldwide.

Demand for outsourcing in Asia-Pacific grew strongly in the first half of 2007, compared with the same period last year, The total value of new (as opposed to renewed or restructured) outsourcing contracts in the US $25 million-plus bracket, where most significant outsourcing activity occurs, is US $5.4B, an increase of 100 percent on the first half of 2006. Asia-Pacific was the only region to demonstrate growth in the BPO market in the first half of 2007. Eight BPO contracts, in the US$25 million or greater category, with a total contract value of US$700 million were signed in Asia-Pacific in the first half of 2007, representing growth of 33% by volume and 133% by value compared to the first half of 2006.

TPI's data shows that the number of restructuring deals coming onto the market has declined quite notably in the first half of 2007. We think this is partly down to the proactive stance many suppliers have been taking to ensure they are in a strengthened position at renewal. And, while the outsourcing market is very tough in some quarters, there remain areas of good opportunity. For example, in financial services (insurance in particular) TPI's data shows that there is still plenty of headroom for further growth.

Inclusion of offshore delivery in outsourcing deals hits record high. Despite TPI's observation of an increase in offshoring through captives, the use of offshore service delivery within the scope of outsourcing also continues to expand.

Telecoms sector leads the way in Asia-Pacific Outsourcing as financial services contract value declines. Over the last five years the financial services sector has accounted for 28% of global TCV for contracts valued at over $25M, and 38% of Asia Pacific TCV. In the first half of 2007, despite a 34% share of global TCV, financial services sector had just 9% of Asia Pacific TCV.

Telecoms sector is the most prolific sector for outsourcing in the region in 2007 to date. Traditionally a strong player in Asia-Pacific, Telecoms took a 46% share of first half TCV in 2007, compared to a 33% average in the previous five years. However, this overall performance was strongly impacted by the China Mobile mega deal.

Other sectors showing increased outsourcing activity in the region include Manufacturing with a 26% share and Energy with 12% of 2007 TCV, compared to just 1% in the previous five years. Deregulation of the energy industry in the region is providing opportunities for outsourcing as companies seek to variabilise their cost structures and become more competitive.

The global 'Big Six' companies including Accenture, ACS, CSC, EDS, HP, and IBM, have accounted for only 10 percent of value of mega deals in 1H 2007, while the 'Big Five' European companies including Atos Origin, BT, Capgemini, Siemens, and T-Systems have accounted for 27 percent of mega deals in 1H 2007.

TPI estimates that almost €1.6bn worth of outsourcing contracts is up for award in the next three months. However, 2007 is still looking relatively 'soft', (largely due to the state of the Americas' market) not least because customers are continuing to demand more offshore services. In this context, the European market is looking much healthier. The client-side view of offshore outsourcing services is that they can be used to make immediate cost savings. And we see the Indian firms playing to this with their strategies around infrastructure services. For example, Infosys says its aim is to work more closely with its European customers to identify areas where is can make 'quick wins' for the client. Furthermore, there is ongoing evidence that customers are opting for out-tasked offshore services rather than a full outsource. Again, this plays well to the Indian positioning around strategic sourcing, in remote infrastructure service.

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World Human Resource Outsourcing Market to Exceed $78.8 Billion by 2010, According to New Report by Global Industry Analysts, Inc.

With only about 5% of Fortune 2000 companies and 1% mid-market companies involved in the multi-process HR BPO contracts, there lies huge potential for HRO market. Enhanced global delivery capabilities of HRO service providers are driving demand for large multi-purpose HRO contracts. By offering plethora of services, new players entering into HRO middle-market are aptly addressing the HR requirements of companies with about 1,000 to 10,000 employees.

World human resource outsourcing (HRO) market is all set to exceed the $78.8 billion mark by 2010 at a healthy CAGR of 10.71% over the 2000-2010 analysis period. As stated by the recent report published by Global Industry Analysts, Inc., the United States, with a share estimated at 48.90% in 2006, forms the largest market for Human Resource Outsourcing, while fastest growth is expected to emanate from countries in the Asian region, with a projected CAGR of 15.74% over the aforementioned period.

In terms of service sectors, payroll services market constitutes the largest outsourced service, with a share estimated at 29.34% in 2006. Fastest growth, however, is expected to emanate from the education and training services market that is expected to post a CAGR of 13.08% over the 2000-2010 analysis period. Other services independently analyzed include Benefits Administration Services market, Recruitment and Staffing Services market, Hiring Administration Services market and Other Human Resource Outsourcing Services market.

Contract negotiation cycles are getting shorter and buyer confidence being increased with Tier 1 HRO service providers entering into large and complex contracts that require huge capital investment in regional shared service centres with excellent HR expertise. By offering plethora of services, new players entering into HRO middle-market are aptly addressing the HR requirements of companies with about 1,000 to 10,000 employees. Number of contracts received by HRO suppliers is increasing, with the time span ranging from seven to ten years, as compared to earlier five-year term. Increased HR service offerings that include payroll, benefits administration, and employee care are expected to drive prices down. Further, by leveraging offshore resources and refining delivery systems, HR service outsourcing providers can significantly offer cost savings. Surging interest of multi-national organizations to benefit from multi-national contracts is expected to raise multi-country HRO capabilities of HR service providers.

HRO is also driven by offshore outsourcing trend with most of the outsourcing focused on processing services. Philippines, India, South America, and China are some of the major regions with more offshore contracts. There is a shift in vendor focus from payroll, benefits administration, and employee care services to recruitment, absence management, and learning services. Also, there exists a market shift in vendor focus towards business case metrics development. HRO is still a growing market and is rapidly transforming to an industry that supports complete business processes from an earlier model of payrolls service bureau.

HRO industry is likely to witness growth in the business from mid-market companies. It is expected that HRO suppliers would receive more number of outsourcing deals that are of smaller value from mid-market clients in the near future. Though few mid-sized companies can spend substantial amounts of over US$25 million per year on HRO, the number is on the rise.

Organizations are innovating on various tools such as performance indicators and standard HRO performance metrics for critically analyzing HRO processes. They are employing these tools to determine return on investment, and to monitor Service Level Agreements (SLAs) related to HRO functions. Corporate HR leaders are ensuring that services offered by HR providers are actually worth the value paid.

 Top Stories

IT budgets globally are set to grow and the outlook for the market is positive: Datamonitor study
A Datamonitor survey of 500 IT decision makers in enterprises across the US, Europe and Australia, undertaken in the first half of 2007, reveals that the majority of enterprises' IT budgets have increased from last year and a high proportion are expected to increase in 2008. The largest proportion of enterprise IT budgets will be spent on internal development. The study also reported that companies in the financial services and energy/utilities sectors are the most probable candidates for increasing their expenditure on IT. In addition, the study revealed that companies in Italy are expected to approach external/third-party IT vendors before their internal IT departments, while companies in Benelux and Australia are reluctant to contact external IT vendors and are likely to approach their in-house IT staff before external vendors. The study also cited that enterprises are expected to increase their spending on IT services and software in the future, while expenditure on hardware is expected to decline.

India to dominate global KPO Mkt. according to Evalueserve
According to Evalueserve's estimates the worldwide KPO market is expected to grow to 16.7 billion dollar in revenues by 2010-2011 at an annual growth rate of 39%. Of this, India would account for 11.2 billion dollars. The industry would employ about 3.5 lakh professionals by March 2011 globally. This includes nearly 2.55 lakh in India, where only about 75,400 people are currently employed. It is quite likely that companies -- both with their own captives and those using third-party vendors -- may use a 'hub and spoke' model in which a provider in India may constitute the 'centre' whereas other units in the world may provide appropriate 'spokes', California-based Evalueserve's Chairman Alok Aggarwal said.

Merrill Lynch opens €30m R&D centre in Ireland
Merrill Lynch has announced its plan to expand its R&D operations in Ireland by opening a new research, development, and innovation (RDI) facility at Dublin. The company will invest EUR 30 million for this purpose. The new facility will focus on exploring and developing new technologies and applications to support the bank's worldwide operations. The centre is expected to house about 40 research professionals.

Logan Circle Partners Selects BNY Mellon Asset Servicing to Provide Back-Office Support
BNY Mellon Asset Servicing it will administer the back office, including trade processing, bank loan processing, investment accounting, reconciliations and performance measurement, for Logan Circle Partners, a Philadelphia-based investment group that focuses on fixed income strategies for institutional investors.

London Councils renews Business Process Contract with SunGard Vivista
London Councils, a lobbying and policy development organisation that runs a range of services designed to make life better for Londoners, has selected SunGard Vivista for a new five-year contract to manage business services and information and communications technology (ICT). SunGard Vivista will be responsible for supporting business processes and the technology that helps London Councils to deliver its services.

KPN re-scopes outsourcing contract with Atos Origin
Under an agreement announced today, KPN is in-sourcing its Dutch data centre services and desktop management activities. The telecom services provider has renewed its contract with Atos Origin in application management for another three years. Atos Origin is also selected as sole supplier of EAI services and project management.

Australian Government IT contracts worth $600 million a year up for renewal
According to Government business advisory firm Intermedium, there are 23 Federal Government agencies with major IT infrastructure contracts that have almost run their course. These agencies will need to go to the market by mid 2009 to meet their IT infrastructure requirements. Seven of them have contracts that expire in 2007, seven in 2008, and nine in 2009. Intermedium’s Federal Government IT Infrastructure Outsourcing Report 2006-07 shows that of the 56 Federal Government agencies - 16 agencies have “single sourcing” outsourcing arrangements - 11 agencies have “selective sourcing” arrangements and at least 4 of these agencies moved from single sourcing when their outsourcing contracts were due for renewal - 29 have “self-managed” arrangements - There are currently 8 suppliers with infrastructure outsourcing contacts in Federal Government. Together, they accounted for more than $500m in Federal contracts in 2005-06

Wachovia Bank Signs Multiyear Contract with FIS
Wachovia has awarded a transaction processing deal to Fidelity National Information Services (FNIS), under which FNIS will provide the bank with its mortgage servicing platform called Mortgage Servicing Package (MSP) that will allow the bank to process its mortgage and home equity lines of credit. In addition, the deal entails FNIS to offer transaction processing services to Wachovia for credit cards associated with its home equity business. FNIS' MSP will provide the bank with securitization, default, escrow management, and regulatory oversight capabilities for its home equity loans.

Rabobank renews Unisys payments contract
Rabobank has extended its BPO deal with Unisys Payment Services and Solutions (UPSS), a subsidiary of Unisys, till December 2012. The deal entails UPSS to continue to offer Rabobank with document outsourcing services covering the bank's paper-related payment transactions. The deal will allow the bank to better manage its paper-based payments and reduce costs involved in the processing of payments.

Oracle Launches R&D Network in Asia-Pacific, Japan
Oracle has announced the forming of a single research and development network by linking its 19 development and solution centres in Asia-Pacific and Japan to build, test, and showcase technology innovations across the region. To date, Oracle has six Oracle Asia R&D Centres (OARDC) -- in Beijing, Gurgaon, Seoul, Shenzhen, Singapore, and Tokyo -- and 13 solution centres placed across the Asia-Pacific. These centres focus on developing solutions for the local markets in addition to contributing to global product development.

Weyerhaeuser Company Selects HP for Global IT Services Deal
Under the contract, HP will provide Weyerhaeuser a single point of contact for client and server management, software and storage management, business continuity and availability and disaster recovery solutions, as well as mission-critical technical support and lifecycle management services.

Air Namibia outsources Revenue Accounting to Softec
Air Namibia, one of Africa's prime carriers has signed a 5-year contract for revenue accounting processing services with Softec. Softec will provide revenue accounting processing services to Air Namibia from its services centre in Reichenschwand, Germany, and will provide complete revenue accounting services including the processing of sales and uplifts. Claims, declaration of revenue with comprehensive account potings for the general ledger, management of deals and a decision support intelligence.

National Institutes of Health Awards $38.9M Contract to SRA
The National Institutes of Health (NIH) has awarded SRA International with a 5-year, $38.9 million task order to provide it with IT support and Web development services. Under the terms of the task order, SRA will provide a variety of IT services, such as project management; systems analysis, engineering, and planning; database design and development; software development; and Web development services to NIH for its applications and websites. SRA teammates for the task order include CIBER, Information Gateways, Lockheed Martin Management Systems Designers, and Sapient.

Canadian Pacific signs agreements for capability upgrading in IT
Canadian Pacific has announced agreements with IBM and Infosys Technologies Ltd. to manage the railway's I.T. application development and support. The multi-year agreements will focus on the application development associated with management and maintenance of CP's operations.

 Service Provider News

Satyam signs pact with Hawker Beechcraft for design services
Satyam Computer Services has signed a contract with Hawker Beechcraft to provide design and other services aimed at streamlining the US aviation firm's engineering operations. Under the deal, Satyam will establish an offshore development centre with about 40 professionals dedicated to Hawker's projects. Within a year, the number of professionals will increase to 100, Satyam said in a statement.

ACS Awarded Benefits Outsourcing Contract with Ameren
ACS has won a five-year human resource outsourcing deal from Ameren to provide benefits administration outsourcing services. ACS will be responsible for administering pension and health plans of Ameren for its 24,000 employees and retirees. In addition, the company will use its proprietary benefit outsourcing technology to administer benefits and health plans of the utility company.

IBM Wins $1.4 Billion Outsourcing Deal From AstraZeneca
IBM will provide IT infrastructure management services to AstraZeneca locations in 60 countries. The services will include server and storage hosting, desktop management, network maintenance and management, and help desk support.

Randstad wins payroll contract with Philips for undisclosed sum
Philips Electronics Netherlands has awarded a payroll service outsourcing deal to Randstad Holding, under which the latter will provide the former with payroll administration services. These services are currently provided by Philips CIAN, the salary administrator of Philips. According to the outsourcing agreement, Philips CIAN's current employees will continue to carry out their responsibilities as part of the Randstad Group.

Capgemini wins government-backed kids database contract
Capgemini has won a £40m six-year contract to build and host a ContactPoint database containing information about UK children. The ContactPoint database will form part of the government's 'Every Child Matters' programme with an agreement for Capgemini to run the database from 2008 to 2014.

Unisys Selected to Provide IT Outsourcing Services to New Air Cargo Joint Venture
Unisys Corporation announced that it has been selected by the U.S. Cargo Sales Joint Venture LLC (USJV) to provide a broad range of IT outsourcing support services for the cargo organization. USJV is a joint venture between Delta Airlines, Air France, and Korean Air, offering cargo-related services in the U.S.

India's KPIT Unit GBS Signs Services Deal With US' Cummins
KPIT Cummins Global Business Solutions (GBS) has won a finance and accounting outsourcing (FAO) deal from Cummins to offer finance and accounting services for its worldwide operations. GBS is likely to earn revenues worth $1 million from the deal in its first year, while the company expects to earn revenues worth up to $15 million per year from the deal for the next 4-5 years. In addition, Cummins is likely to pay an upfront fee of $5 million along with an additional payment of up to $5 million at the end of the fifth year, depending on its financial performance

Alfred McAlpine wins UK Information Commissioner's Office (ICO) outsourcing contract
The Information Commissioner's Office (ICO) has awarded a five-year IT service contract to Alfred McAlpine - IT Services, A number of services will be provided to the UK authority for information protection as part of the deal, including service desk, network management, server management and hosting.

Computacentre wins contract with TV giant FremantleMedia
Vendor Computacentre Services has signed a five-year outsourcing deal with entertainment company FremantleMedia, makers of hit shows The Apprentice and The X-Factor. The multimillion-pound agreement will see Computacentre taking responsibility for 1,600 computers and over 100 servers, as well as providing IT support for 1,200 workers based the UK.

Wipro Records 34% Growth in Total Revenue
Highlights of the Results: -- Total Revenue was Rs. 41.83 billion ($1.03 billion(1)), representing an increase of 34% over the same period last year. -- Net Income was Rs. 7.1 billion ($175 million(1)), representing an increase of 16% over the same period last year. -- Global IT Services and Products Revenue was Rs. 29.4 billion ($725 million(1)), representing an increase of 20% over the same period last year. -- Global IT Services and Products Earnings Before Interest and Tax (EBIT) was Rs. 6.23 billion ($153 million(1)). -- Global IT Services & Products added 39 new clients in the quarter. Deals won during the quarter included a $130 million multi-year Total Outsourcing engagement from a utility company in Europe. -- India and Asia-Pac IT Services and Products recorded a 42% growth in EBIT over the same period last year. Revenue grew by 51%.

Tata Consultancy Q1 net up 37 pct, beats forecast
Software services exporter Tata Consultancy Services Ltd. on Monday beat forecasts with a 37 percent rise in quarterly profit as a growing outsourcing business offset the impact of a stronger rupee and wage hikes. The company, which added 54 new clients in the June quarter, expects the business momentum to continue as it bags more large outsourcing contracts from Western clients seeking to cut costs.

Infosys to buy Philips Global`s finance BPO
Infosys Technologies plans to acquire the finance and accounts (F&A) BPO operations of Philips Global. The company is expected to pay an assured sum of $200 million over the next 5 years to Philips for the acquisition. The acquisition will allow Infosys to strengthen its BPO operations (Infosys BPO) and offer services 24x7. Philips' F&A BPO operations employ about 1,500 professionals worldwide, and are spread across India (Chennai), Poland (Warsaw), and Thailand (Bangkok).

Firstsource, WNS and Genpact others in race for Citi BPO unit
According to press reports, Citigroup has chosen a set of three potential bidders including Genpact, Firstsource Solutions, and WNS Global Services to sell is Mumbai-based BPO unit Citigroup Global Services (former e-Serve). It is also believed that various large companies and private equity firms, such as IBM, Automatic Data Processing, Infosys, EDS, Capgemini, Blackstone, and General Atlantic, which were initially interested in acquiring Citigroup's BPO unit, are now not bidding to acquire Citigroup's Indian BPO unit. The reports also revealed Genpact as the most likely candidate to win the BPO unit deal. The sale of BPO unit is expected to generate revenues worth INR 32 billion for Citigroup.

Xansa buy to give Steria firm India footing
French IT services provider Groupe Steria’s £472 million acquisition of UK-based technology firm Xansa would give it a strong foothold in India and a significant offshoring presence. The combined entity post-acquisition would be ranked among the top 10 IT service providers by revenue in the European and UK markets, and is expected to be ranked in the top four in the UK providing IT services to the public sector.

First Data Extends Agreement with BBVA Bancomer
First Data International has extended its payment processing agreement with BBVA Bancomer, a leading financial institution in Latin America. First Data will continue to support BBVA Bancomer’s retail business in Mexico, and continue to provide payment processing services to Finanzia USA, a BBVA subsidiary, supporting its credit card and retail operations in the United States.

ExcellerateHRO Signs Contract Extension With TOTAL in the UK for Benefits Administration Outsourcing
Under the 48-month contract extension, ExcellerateHRO will provide administration services for approximately 15,000 members of the TOTAL pension plan in the United Kingdom.

KPN, Getronics unit and CSC win ICT services contract from Dutch railways
KPN NV, Getronics NV unit Getronics PinkRoccade and US-based Computer Sciences Corp have won a long-term contract to provide ICT services to the Dutch railways group Nederlands Spporwegen, the companies said in a statement. Under the terms of the contract, KPN and Getronics PinkRoccade will manage the NS' work stations and data centre, while CSC will be responsible for the service desk and instrument management.

Unisys Receives Extension of IT Outsourcing Services Contract with City of Chicago
Under the terms of the agreement, Unisys will manage services for Chicago's server infrastructure and upgrade its network operating environment. Unisys already provides outsourcing services for the city that include network management, hardware support and maintenance, among others.

TeleTech Signs Agreement With Leading Global Money Transfer Services Company
The client, a Fortune 500 financial services company, has selected TeleTech to provide BPO services in three major business areas including product technical support, retail agent technical training, and in designing the client's virtual agent campus. Under the terms of the agreement, TeleTech will provide a comprehensive front- to back-office solution to address complex Tier I and Tier II technical support needs for in-store agents. The work requires deep understanding of intricate client applications and all associated hardware and ancillary equipment used to support money transfer operations.

EDS Selected for Comprehensive U.S. General Services Administration Alliant Program
EDS today announced it has been selected by the U.S. General Services Administration (GSA) to provide information technology (IT) solutions for all federal government agencies under the newly awarded GSA Alliant contract. EDS is one of 29 companies that may compete for task orders under the $50 billion Indefinite Delivery/Indefinite Quantity contract.

Atos Origin signs contract with Catalent Pharma Solutions for outsourcing of IT infrastructure
Atos Origin, an international IT services company, signed a five-year agreement with Catalent Pharma Solutions, a leading provider of advanced technologies and outsourced manufacturing and packaging services to the global pharmaceutical and biotechnology industry. Atos Origin will provide data centre services–including a new email environment, help desk support, and server and security administration.

Infosys awarded multi-year global BPO contract by Royal Philips Electronics
As part of the agreement, Philips will enter into a multi-year contract with Infosys BPO to provide Finance & Accounting (F&A) services and the processing of purchasing orders. Infosys will also acquire three shared service centres located in India, Poland and Thailand from Philips. The contract is amongst the largest Finance & Accounting BPO engagements from India and will expand Infosys’ global network, particularly strengthening its European operations.