Short-term contracts for the BPO industry

Wednesday, 03 June 2009

The uncertain economic condition has rocked all kinds of businesses, across sectors and regardless of size or specialization. The widespread global financial crisis has also affected the BPO industry. Outsourcing activity witnessed a drop in the first quarter of this year (January to March 2009), compared to the previous quarter of Q4 2008. The total number of BPO/KPO contracts recorded in Q1 2009 was 63, compared to 79 in the previous quarter.

Average contract value and tenure (declared) for Q1 2009

	Total number of deals	Total size of deals ($ billion)	Average Value ($ million)	Average tenure
January 2009	21	1.3	211.4	5.3
February 2009	27	18.2	2,597.7*	4.4
March 2009	15	0.2	60.4	4.4
Total (Q1 2009)	63	19.6	956.5*	4.7

Source: ValueNotes Outsourcing DealTracker

Note: * includes the $17.5b deal signed between the US Army and CIBER Inc

The total value of contracts (publicly declared) was $19.6 billion in Q1 2009, around 80% higher than $3.8 billion in the last quarter. This increase was primarily due to a $17.5 billion deal signed in February 2009 between the US Army and CIBER Inc. If this deal is not included, then we see a 6.5% fall in the total value of contracts for the first quarter of 2009 as compared to the last quarter of 2008.

Short-term contracts were the flavor of Q1 2009

Given the unstable economic situation, corporations are reluctant to commit to long-term outsourcing contracts. There was a significant increase in the number of deals with a tenure of 1 to 5 years - 42% in Q1 2009, compared to 28% in Q4 2008. The number of long term contracts (with tenure greater than 5 years) dropped from 72% in Q4 2008 to 58% in Q1 2009.

Source: ValueNotes Outsourcing DealTracker

Contracts by services

Over the last couple of months, several banks and financial institutions are seen divesting their captives and outsourcing their requirements to third party suppliers. Moreover, companies in other verticals such as healthcare, telecom, insurance, manufacturing, etc. are increasingly outsourcing their ‘non-core F&A’ activities. This has led to an increase in the number of finance and accounting contracts from 14% in Q4 2008 to 26% in Q1 2009.

Source: ValueNotes Outsourcing DealTracker

“Other services”, which include specialist services like medical transcription, transaction processing and supply chain services, saw a 50% growth when compared to the previous quarter. CRM, HR and KPO have seen their share decline while the F&A has been a real gainer.

Given the economic scenario, cost rationalization will become a compelling reason for corporates to consider outsourcing/offshoring in their strategy. While the first quarter of 2009 has been slow for the BPO industry, going forward, we expect increasing activity in the later part of the year.

The above analysis is based on deal data extracted from the ValueNotes Outsoucring Dealtracker , which tracks contracts, M&As and other deals in IT and BPO outsourcing. To know more about the DealTracker or for a free trail, contact us at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

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