Global sourcing, smaller deal sizes, larger vendors, multi-service contracts, etc. have been some of the buzzwords in outsourcing through 2007. However, how much of this is actually borne out in the actual deal-making on the ground? Our analysis of contracts during 2007 validates some of the expectations, and disproves others. Our analysis of course, is based on reported or publicly declared contracts. In some cases, tenure and financial details are not available despite our efforts to get this information, which does limit the analysis somewhat.

ValueNotes recorded a total of 430 BPO contracts between January and December 2007, with a total declared value of $29.2 billion. The typical (average) BPO contract in 2007 was worth $239 million and of 5.4 years' duration. The table below lists some of the largest contracts reported last year.

The highest total value of contracts signed was in the first quarter (Jan - Mar), with $10.01 billion. Contrary to the expectation that the last quarter of the year (Oct-Dec) is the most sluggish for outsourcing business, the lowest total value of contracts was actually reported in the third quarter (Jul-Sep), with only $4.87 billion worth of contracts being declared.

The growth in the industry was evident from that fact that about 87 percent of the contracts signed in 2007 were new deals, as against 13 percent which were extensions or scope expansion (to include additional services). The average tenure of extended contracts was 3.4 years, much lower than the average tenure of new contracts, which was 5.8 years.

Contracts by Vertical / Industry

Banking and financial services (BFS) was the leading vertical / industry to outsource business process and knowledge services contracts, with 34% of the total contracts originating from BFS companies. The "public sector", classified separately and defined as government-driven business was the second, giving away 17% of all contracts. The other notable industries were Healthcare (9%), Telecom (6%) and Media and Communications (5%).

Contracts by Vertical / Industry

Source: ValueNotes Research

Contracts by Service

The largest proportion of contracts were awarded for transaction processing (30%) and finance and accounting (23%) services. Customer relationship management (CRM), including call center services formed the third largest group, with 14% of the total contracts, followed by human resource services (10%).

Contracts by Service

Source: ValueNotes Research

Transaction processing contracts largely included processes like insurance claims processing, credit card processing, loan administration, deposit processing, etc. Finance and accounting contracts were awarded for services such as bill and payment processing, investment accounting, receivables management, etc.

Contracts by Geography

Fifty-eight percent of all contracts recorded in 2007 originated from the US. The UK was second with 19% of the total contracts. Interestingly, three of the five largest contracts in 2007 were awarded by UK-based organizations. In 2007, 12 percent of the contracts were awarded by companies in Asia, Australia, Middle East, Latin America, Africa, etc. This number is likely to go up in the future.

Contract Value

The total value of contracts reported in 2007 was $29.16 billion. The month of February reported the highest total value ($7.71 billion), with at least three billion dollar-plus contracts signed in this month. An analysis of contracts by value shows that a large number of contracts reported in 2007 were signed for less than $50 million. A total of nine contracts above $1 billion were reported.

This article is an extract from the "ValueNotes Outsourcing Dealtracker - Annual Analysis of Contracts". For more information on this product, click here, or contact us at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .