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Outsourcing Deals Rise, But They Get Cheaper

 

Oct. 18, 2005--The value of outsourcing contracts is coming down.

In a combination of increased competition and a large number of contracts being restructured, the value of outsourcing contracts has dropped by 10 to 15 percent for 2005, according to a report released Monday.

The TPI Index, a quarterly report on the current state of the global outsourcing market compiled by advisory firm TPI, showed that despite record high numbers of new outsourcing contracts being signed this year, the total dollar value of those contracts is on course for a significant decline.

According to the report, contract value is likely to drop to between $60 billion to $65 billion from its $72 billion average in recent years.

But while the value of each contract is going down, the number of deals continues to rise. The third quarter of 2005 saw a record gain of 11 percent in the total number of outsourcing contracts signed and the number of contracts signed in 2005 so far is 191, compared to 172 signed by this point last year.

Fifty-seven contracts were signed in the third quarter and were valued at $13.5 billion. By comparison, 54 contracts were signed in the same quarter last year for a value of $15 billion.

Most strikingly, 49 contractsthe third quarter of 2004 were signed and valued at just $19 billion, a sign of how significantly contract values have since dropped.

Said Peter Allen, partner and managing director at TPI, "Clearly, outsourcing is not falling out of favor. But the value of the outsourcing pie has shrunk in size compared to 2004 as the value of individual transactions is generally getting smaller."

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    • Kasey Wehrum

    Staff writer Kasey Wehrum has written for Inc. magazine on subjects ranging from the businesses behind professional bull riding to gadget inventor and father of the infomercial, Ron Popeil. His work has appeared in the New York Times, Worth, Budget Travel, and on MSNBC.com. He lives in New York City.


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