Outsourcing providers are facing increased competition from India, declining contract value and added complexity, according to a new TPI report.
The outsourcing adviser’s survey indicated that the value of new contracts (excluding retendering) dropped by 8% in the final quarter of 2005, which represented the worst result for five years.
Although 2006 saw a record number (350) of contracts being signed, the trend towards shorter and smaller contracts and a 67% increase in the number of providers over the past four years has added to the challenges faced by outsourcers.
Duncan Aitchison, TPI managing director for Europe, the Middle East and Africa and Asia-Pacific regions, commented: “In practice, the trend towards shorter contract duration means that outsourcing providers are obliged to compete more often in order to secure the same level of business. For many the cost of sale can become a major issue. Consequently service providers need to be increasingly selective in terms of the contracts they pursue.”
He added: “In general terms, this increased competition is clearly good for buyers. However, greater diversity and specialisation amongst suppliers, combined with more frequent tendering, does mean more complexity in both the procurement process and the management of outsourcing contracts.”
Indian service providers, such as Wipro, Tata and Infosys, have grown their market share to 7% from only 0.5% in 2002.
Aitchison concluded: “The figures clearly show a maturing of the India-based service providers, as they challenge the established players by taking an incremental approach and signing a large number of small, specialist contracts. In the ADM space, for example, although they have not yet surpassed the Big Six, the difference between the market shares of these groups is now marginal.
“India-based providers are clearly considered an attractive and credible alternative to traditional players and over the next few years we expect to see them competing directly with the Big Six for larger value contracts.”
