IT Outsourcing Plummets in 2Q 2010

By Susan Nunziata  |  Posted 07-30-2010

IT outsourcing was among the many areas to exhibit declines in Q2 2010, according to the Global TPI Index, which measures commercial outsourcing contracts valued at $25 million or more. Ongoing economic uncertainty is keeping a lid on global outsourcing overall, according to the report. The TPI Index recorded total contract value (TCV) of $18.1 billion in the 2Q 2010, down approximately 13 percent when measured both sequentially and year-over-year. TPI is a global sourcing data and advisory firm.

By scope, IT outsourcing TCV during 2Q 2010 fell nearly 30 percent from the prior quarter and 23 percent year-over-year. A five percent year-on-year increase in first-half IT outsourcing TCV -- to $29 billion -- was fueled by large 1Q contract restructurings, rather than by 2Q performance. However, innovations such as cloud computing are beginning to influence the approach companies take to their service-delivery strategies. TPI finds that 78 percent of the firm's clients have had internal discussions about cloud computing.

More Outsourcing Trends

For first-half 2010, the global market TCV for outsourcing overall was $38.9 billion, flat with a year ago following an unprecedented surge in contract restructurings during the 1Q 2010. In 2Q 2010, restructurings accounted for 20 percent of TCV, in line with historical trends.

The 2Q 2010 TCV of contracts for business process outsourcing (BPO) rose 60 percent over the 1Q 2010, which was one of the worst on record in this segment, and 20 percent over 2Q 2009. Yet, overall BPO activity remained weak by historical standards, with the greatest growth in contracts valued at $10 million to $25 million.

Industry Verticals Vary Widely

The Global TPI Index found declining outsourcing activity in sectors such as financial services, manufacturing and telecom & media, even in the more robust Americas region. These three sectors are as critical as ever to the outsourcing market, and their relative sluggishness restrained overall market growth in 2Q and first-half 2010. The travel, transportation and hospitality industry saw impressive gains for the second straight quarter. The retail sector, with four successive halves of growth off a small base, remains an industry to watch, as retailers continue to experience top-line revenue pressure and pursue cost reductions from outsourcing.