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Everest Group: Global Outsourcing Slowing Down

by: Karen Cayamanda

Tuesday, November 8, 2011 |

Is Outsourcing Losing its Touch?

Activity in the global outsourcing scene is getting slow. From 503 outsourcing contracts posted back in third quarter of 2010, the number went down for the same period this year - only 472 according to market advisory and research firm Everest Group (reported at zeenews.india.com).

Everest Vice President (Global Sourcing) Amneet Singh said the decrease in the number of outsourcing deals and transaction volume indicates the “sluggish” phase the global outsourcing market is currently facing. However, several large deals have been closed during the quarter, and this drove the global transaction volumes to reach US$2.7 billion in annual contract value (ACV).

IT outsourcing and business process outsourcing (BPO) posted a drop in transaction volumes, though the former had seen a 14-percent increase in ACV for the third quarter of this year.

It’s good to note, though, that Q3 is not all about outsourcing slowdown. Third quarter had seen an increase in the number of captives that were set up. In 2010, only four new captive centers were established, and nine expansions. For Q3 2011, however, 20 new centers were set up.

This slowdown in the global outsourcing landscape is almost something to be expected, considering the current financial woes in the US and UK, two of the largest markets being tapped by the industry. Of course, various business owners are getting more and more cautious when it comes to spending especially in times of financial uncertainty.

It may be the reason the global outsourcing market is now seeing a decline in deal signings and transaction volumes, but then again, there are other companies that are realizing what outsourcing can do for them. By transferring work to a service provider, they can take advantage of the labor arbitrage, enabling them to reduce their costs and keep the business going.

Like what Singh said, it is still too early to say what will happen in the next few quarters or years. This Q3 decline may or may not be a trend. The key, as always, is to stay updated on the latest developments and have contingent plans to ensure the business will stay afloat no matter what the economy will throw at us.

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