Research by independent market analyst Datamonitor and leading outsourcing advisory firm Everest Group has found that second-tier and offshore IT services vendors scored some landmark contract wins during Q3 2005.
Datamonitor’s IT Services Contracts Database found that Indian suppliers Tata Consultancy Services and Infosys Technologies, and second-tier international vendors including Keane and Pomeroy Computer Resources all secured their largest-ever contract wins during the quarter. This reflects the growing trend for client organisations to work with a number of best-of-breed, specialist suppliers to manage specific areas of IT infrastructure.
The service tracks every new outsourcing, systems integration and consulting deal with a value greater than $1m signed by major IT services vendors, and contains information on more than 7,500 contracts signed during the last five years.
Datamonitor tracked a total of 432 deals during Q3 2005, which represented a 1% decline from the same period last year. However the value of deals fell by 32% from $41.9bn in Q3 2004 to $28.5bn in Q3 2005, with the average contract size declining from $95.7m in Q3 2004 to $66m Q3 2005. The main reason for this was that only four billion dollar deals were announced over Q3 2005, half the number tracked during Q3 2004.
Nick Mayes, principal analyst for global computing services at Datamonitor, says: “Overall, this has been a major quarter for offshore sourcing. Large corporations are dealing directly with offshore services vendors, and are signing deals worth hundreds of millions of dollars with them. Global IT sourcing models are gaining mainstream acceptance.”
One of the other areas of outsourcing which Datamonitor tips for strong growth is finance and accounting outsourcing, and there were a couple of interesting deals signed in this space during the third quarter – notably, Accenture’s contract with National Australia Bank to run some of its accounts payable functions from a centre in Bangalore.
However, Everest Group notes that while IT giants such as Accenture and IBM currently dominate the outsourcing market, they are increasingly being challenged by Indian offshore providers.
While Accenture and IBM have 32% and 29% respectively of the total number of deals signed in the last six quarters, Genpact and WNS Global Services are gaining market share, and have won 12% and 5% of deals respectively.
According to Michel Janssen, president supplier solutions at Everest, FAO plays to the strengths of Indian companies as it does not revolve around technology issues, but is mainly a labour arbitrage play.
Janssen says: “India has a higher quality, more educated workforce. They are not just offering clerks, but college graduates, who can not only do processing, but superior analytic work.”