Business Process Outsourcing Starts the Year Strong

The momentum for the first quarter of 2006 could herald the "beginning of a robust year," an analyst predicts.

Business process outsourcing is on a roll, according to TPI, a broker of outsourcing deals.

In a report on outsourcing trends for the first quarter of 2006, TPI partner Peter Allen noted that BPO posted a strong fourth quarter in 2005 and continued that momentum into the new year, posting its best quarter ever, with $7.3 billion in deals. At $22.7 billion, the quarter had the highest total contract value in seven years.

"This quarter may be the beginning of a robust year," said Peter Allen, a partner at TPI, which is based in The Woodlands, Texas.

An increase in BPO will offset a slight decline in IT outsourcing deals for the year, Allen said.

In addition to being marked by BPO momentum, the quarter also saw a significant increase in contract restructurings.

Allen said 19 contracts out of the 83 signed in the quarter were restructurings, which he said is typical of whats to come.

"We expect that will continue through 2006 and into 2007," said Allen.

There were four megadeals in the quarter, according to TPI. These were contracts signed by IBM and Gap, EDS and General Motors, Perot Systems and Triad, and Fidelity National Information Services and Banco Bradesco and Banco ABN AMRO Real, both of Brazil.

Seven more megadeals are still in the pipeline, Allen said. Overall, market share leaders were IBM Global Services, EDS and T Systems.

/zimages/6/28571.gifClick here to read more about EDS outsourcing efforts in India.

In deal restructurings, incumbents retained the contracts 79 percent of the time. Thats below the historic retention rate of 86 percent, said Allen.

In BPO, financial services saw an uptick, accounting for 44 percent of all deals in the quarter.

Deals for procurement services grew sharply, accounting for $800 million worth of deals.

In contrast, all procurement deals signed last year were worth only $980 million.

Document management also saw a strong quarter, with $300 million in work being signed, led by RR Donnelley and Xerox.

Although HR outsourcing was soft in the first quarter, its expected to have a strong year overall, said Allen.

TPI claims to have 25 percent of the outsourcing advisory market.

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