Growing Competition Among Suppliers Creating Buyer's Market for IT and Business Process Outsourcing Services. 

Outsourcing deals worth a total of $88bn per year globally are up for renewal in the next two years, with a large share of those contracts at risk of being given to new suppliers or lower cost offshore players, according to new research by Everest Research Institute 'ERI'. 

The report states, many first generation outsourcing deals, estimated at $118 billion in annualized contract value (ACV), are set to expire in 2006-2008 and new suppliers position themselves aggressively for this business.  Approximately one-quarter of these deals have already been renewed, based on confirmation by key suppliers in Q1 2006, but the majority of these contracts, valued at $88 billion, have not. 

ERI claims more than 40 per cent of these deals face a 'medium to high risk' of being restructured, which opens the doors for new suppliers and the offshore outsourcing companies.  The report found that in IT outsourcing, buyers are seeking to un-bundle outsourced work among multiple suppliers as they move away from awarding IT infrastructure and applications, maintenance and development (ADM) under a single, large contract.  The business process outsourcing (BPO) market is experiencing the exact opposite trend.  Buyers of BPO services are seeking to combine distinct processes within a given area, such as benefits and payroll in human resources, into one contract instead of outsourcing each process separately.  In addition, buyers are beginning to bundle processes with their associated IT applications into the BPO contract, such as HR information systems technology becoming part of an HR BPO deal as opposed to a pure ADM deal. 

Against this backdrop, the so-called 'big six' traditional outsourcers are expected to be hardest hit as buyers look to un-bundle contracts among multiple suppliers as they increasingly move away from awarding IT infrastructure and application maintenance and development under a single big deal. 

Kara Wyatt, COO, Everest Research Institute, said.  'We see competition only heating up as the offshore players step into the fray.   These newcomers now have the experience, cost advantages and critical mass to be serious contenders, and today's buyers can no longer afford to overlook their offshore offerings as an option.  '

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