Global Outsourcing Business Creates Record in Q1 2006

The first quarter of 2006 has seen the global outsourcing industry posting a record performance.

The segment saw $22.7 billion in total contract value (TCV) for contracts valued at $50 million or more, up 173% y-o-y, comprising a record number of 83 outsourcing transactions, according to TPI Index, a quarterly report on the state of the global outsourcing industry by sourcing advisory firm TPI Inc.

“Restructuring of the first-generation agreements have yielded an increased impact on both the volume and the value of contracts in the broader market this quarter, with restructuring representing 33% of the TCV signed as against 24% of TCV during all of 2005,” said Siddharth A Pai, Partner & Managing Director, TPI India.

A study done by TPI disputes the widespread market claims that outsourcing can reduce costs by over 60%. In reality, savings net of professional fees, severance pay and governance costs average 15% and range between 10% at the bottom end and 39% at the top.

However, the research shows that cost reduction remains the primary motivation in current outsourcing contracts. But an increasing number of companies are outsourcing primarily in order to improve quality, up from 11% in 2004 to current 21%.

via Economic Times