Asia-Pacific outsourcing growth accelerates

The region is seeing bigger contracts signed

Outsourcing growth in the Asia-Pacific region was double the global average in 2007, according to the latest TPI Index, compiled by consultancy firm TPI.

Although the number of contracts signed in 2007 grew by just 4%, their total value increased 30% year over year from US$9.9 billion to US$12.8 billion (NZ$12.73 billion to $16.4 billion) and annualised revenues showed a 13% increase, nearly double that of the global average.

The average value of outsourcing contracts in region increased by 25% from US$141 million to US$176 million.

Outsourcing growth was largely driven by corporations in India and China, according to Arno Franz, partner and managing director of TPI Asia Pacific.

"In this region, we usually see Australia, India and Japan topping the list of countries buying outsourcing services. In 2007, India led the pack by almost doubling the value of its outsourcing work year on year," Franz says.

"It appears that, fuelled by a booming economy, Indian industry in particular has found outsourcing to be a viable tool to improve performance and drive growth in market share.

"With increased competition among Indian corporations and the potential privatisation of public sector organisations in the next few years, we expect to see this level of activity continue through 2008 and beyond."

At the end of 2007, about 2,700 active contracts delivered around US$80 billion globally in revenue to providers, accounting for a growth rate in annualised revenue of more than 7%.

On a global level, Franz says the fourth quarter was the best quarter in 11 years, based on contract values.

He says this was fuelled by a number of contracts valued at US$100 million or more annually.

The TPI Index mirrors findings released by Gartner last week with the analyst firm forecasting an 8.1 percent growth rate for the global outsourcing market in 2008 (See Computerworld, January 28, page 26).

In Australia, Gartner says outsourcing is expected to grow only 4.7% to reach A$10.9 billion in 2008.

Despite strong growth, Gartner Australia research director Kurt Potter says IT sourcing strategies and governance structures are still immature, and misaligned with enterprise objectives.

"In 2007, organisations focused less on outsourcing for cost savings than in previous years and more on using providers' global delivery models to access the right skills at a reasonable price, wherever they are," Potter says.

"In 2008, we expect to see some early adopters of multisourcing consolidate around fewer providers to reduce their service integration costs and harvest the benefits of better relationship management with fewer strategic suppliers."

Gartner research vice president Jim Longwood describes Australia as a mature market in terms of outsourcing, with enterprises now signing second and third-generation deals.

But he says staff shortages for internal and outsourced projects are a growing problem in Australia and most other countries in the Asia-Pacific including India, New Zealand, Thailand and even China for some specialised skills. Gartner believes that the outsourcing market has reached a tipping point with regard to utility and alternative delivery models.

More providers are developing utility-based offerings across infrastructure, application and business process domains.

According to Gartner, the utility delivery model is a viable alternative to traditional outsourcing, and organisations should seriously consider utilities in their sourcing strategies.

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