Outsourcing Contracts Are on the Rise

A few weeks ago, I shared with you all a report from market analysis firm Horses for Sources that indicated 2010 is going to be a strong year for outsourcing adoption. The report said key growth areas include software apps, call center, engineering management, finance and accounting, analytics, and human resources, and that mid-size companies will generate the most activity.

Well, it appears more good news is joining the party. According to a new report by TPI, a sourcing data and advisory firm and a unit of Information Services Group, Inc., the number of outsourcing contracts awarded globally will rise this year.

And like the Horses for Source report, organizations are more and more turning to outsourcing for strategic business reasons beyond saving money. In the Horses for Source report, for example, 70% of small organizations (less than $750 million), about half of mid-size organizations (between $750 million and $3 billion), and nearly 60% of large organizations (more than $3 billion) said creating more effective operations at a global level was very important business driver behind their outsourcing decisions. Likewise, in the TPI report, organizations are looking for new ways to for new ways to optimize critical business operations in an improving economy.

Specifically, the report says the growing acceptance of cloud computing, increasing interest in multi-sourcing, and an emerging focus on governance and risk management as will spur a greater number of outsourcing contracts this year. The report is entitled “TPI Momentum Market Trends & Insights 4Q09 Annual Report.” The report is based on market data and fact-based observations gathered by TPI advisors and researchers in the past year to provide guidance and strategy for 2010.

The report isn’t all sunshine though. For example, individual outsourcing projects will be smaller and shorter. As we all know, the mega-deal outsourcing gigs are a thing of the past, and won’t be returning for some time. In fact, a good portion of big outsourcing contracts will be ending this year. According to the report, 422 outsourcing contracts valued at $15 billion are expected to expire in 2010, a 40 percent increase over the total contract value of last year’s expiring awards and the highest level in five years. Many are large contracts signed when the global economy was stronger that will be broken up and awarded in smaller transactions, providing another boost to contract volume this year, TPI predicts.

The report also found that while the IT outsourcing market in North and South America has been fairly consistent for the last three years, Europe has now surpassed it, setting a record for the highest spending in one year, and Asia Pacific had its fifth consecutive year of growth.