Mid-Size Contracts Drive Outsourcing Boost

Filed in archive Outsourcing News on January 20, 2005

Market research firm, Datamonitor, reported that business-processes outsourcing increased the value of information technology services by 37 percent last year. Mid-size outsourcing contracts were largely responsible for the industry's growth from $118.9 billion in 2003 to $163 billion in 2004.

Analysts said that top outsourcing companies lost out to more diverse competition as "[outsourcing] deals were distributed among a larger number of vendors in 2004 than in the previous years." A recorded 1,814 outsourcing deals in 2004, represented a 4.4 percent increase over the 1,738 registered deals in 2003. Also, market share by value of the top ten vendors dropped from a high of 70 percent in 2002, to 57 percent in 2004. These reflected more companies' preference to divide their outsourcing deals among a group of vendors rather than making a mega deal with one vendor.

Overall, although there was decrease in the value of outsourcing deals, an increase in the number of deals was still able to create a positive growth in the outsourcing market. Datamonitor reported that "the average contract value for pure business-process-outsourcing deals fell by 39.8 percent, driven by a 51 percent increase in the total number of these deals in the $20 million to $200 million range. There were six times as many deals in that range compared with contracts valued at more than $200 million."