The number of outsourcing contracts awarded globally will rise substantially in 2010 as organizations look for new ways to improve critical business operations in an improving economy, a study predicts.
A number of large outsourcing contracts are set to expire in 2010 and corporations are simply becoming more comfortable with new types of outsourcing, such as cloud computing, according to the report issued by TPI Research, a unit of Information Services Group.
“The question on many outsourcing professionals’ minds entering 2010 was whether the fourth quarter of last year was the typical end-of-year bounce, or the beginning of a recovery in the industry,” said John Keppel, managing director of research at TPI. “We believe it was both. With the outlook of the global economy still uncertain, clients are clearly turning toward smaller, lower-risk transactions that focus on short-term cost savings.”
TPI noted that there are about 420 outsourcing contracts valued at $15 billion set to expire in 2010. That is a 40 percent increase over the value of contracts that expired in 2009 and is the highest level in the last five years. Many of the expiring contracts are large deals that were signed when the global economy was stronger, and TPI says it is likely those contracts will be broken up and awarded in smaller transactions.
That too will boost contract volumes.
In analyzing contract award trends, TPI says it found that while pricing has long been a prominent factor cited by buyers, it became far more important in last year’s recessionary environment. Also ranking high among the reasons for choosing an outsourcer are terms, stability, strength of existing relationship, and technology and tools.
TPI also found that only slightly more than one-third of outsourcing contract proposals directly met buyers’ objectives in 2009, down from nearly 50 in a survey conducted the year before.
“Having a strong understanding of a client’s objectives and developing a proposal that directly meets the client’s needs are critical to winning pursuits,” TPI chief research officer Paul Reynolds stated.
According to TPI, the five biggest U.S. outsourcers increased their share of the overall market by 9 percent in 2009.
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