Mid-sized contracts boost outsourcing

The value of IT services in 2004 rose by 37 percent, with mid-size contracts in the business process outsourcing (BPO) space contributing heavily to the boost, a US market research firm said.

In dollar terms, outsourcing contracts rose to US$163 billion from US$118.9 billion in 2003, London-based Datamonitor said.

The research firm tracked 1814 outsourcing deals in 2004, a 4.4 percent increase over the 1738 logged the previous year.

IBM Global Services captured the largest market share, signing 10.7 percent of the deals, Datamonitor said. Deals signed in the central government sector grew 78 percent in 2004.

The number of mega billion-dollar deals in 2004 dropped to 25 from 29 the previous year, reflecting customers' preference for outsourcing specific IT and back-office functions, rather than handing over an entire IT department to a single supplier, Datamonitor said.

"One striking feature of the services market in 2004 was that the deals were distributed among a larger number of vendors than in previous years," Datamonitor analyst Nick Mayes said in a statement.

The market share by value of the top 10 vendors dropped in 2004 to 57 percent, compared with 68 percent in 2003 and 70 percent in 2002.

The report, which was compiled with the help of outsourcing advisory firm Everest Group, found increasing competition among vendors, with companies like ACS, Hewitt and Perot winning deals that were traditionally won by top 10 vendors.

"Looking further down the road, we are also seeing the top-tier offshore vendors such as TCS, Infosys, and Wipro compete, and win, in head-to-head deals against top-tier Western vendors - and the wins are increasingly larger in size," Michael Janssen, president of supplier solutions for Everest Group, said in a joint statement with Datamonitor.

Average contract value for pure business-process-outsourcing deals fell by 39.8 percent, driven by a 51 percent increase in the total number of these deals in the US$20 million to US$200 million range, Datamonitor said.

There were six times as many deals in that range compared with contracts valued at more than US$200 million.