Outsourcing megadeals decline

Audra Mahlong
By Audra Mahlong, senior journalist
Johannesburg, 26 Nov 2008

The number of larger outsourcing contacts around the world is shrinking, with companies tightening their spending, says an IDC report.

The report states that “while not declaring the demise of the megadeal, we may in fact be witnessing a cyclical saturation of the market. Service providers will need to continue to invest in lower cost and more flexible delivery models, wisely expand their global footprint, and focus on emerging markets as the source of material growth in the years to come”.

Worldwide, the value of top outsourcing deals decreased by 39.2%, while the number of megadeals - deals valued above $1 billion - decreased from 29 to 14 over the past year. The average contract value in the Middle East and Africa region decreased significantly by 45%.

This trend is also prevalent in SA, says Clinton Jacobs, analyst at BMI-TechKnowledge. “The trend is more to selective outsourcing, in which the vendor can choose the best service provider for the task at hand. This also gives the customer a greater degree of control.”

The result of this trend, says Jacobs, is the move towards the creation of niche areas, along with price and value leadership being carved out by competitors.

The IDC report also revealed that, globally, government contracts represented the largest share of total deal value, with 27.9% of the top 100 contracts.

Jacobs notes that the trend is slightly different in SA. “Government does not have the largest share by vertical, although it is a significant user of outsourcing in general, particularly due to the high need for ICT skills in that sector.”

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