When the going gets weird, the weird turn pro. - Hunter S. Thompson

09 February 2006

Outsourcing enters a new era (Consulting Times)

We’re definitely into act two of the outsourcing drama. TPI notes that the first-generation deals are all now coming up for review—they expect to see €36.5bn of renewals in 2006 rising to €40.8bn in 2007—over a fifth of the total market. Although historically 90% of renewals go to incumbents this still represents a huge opportunity for the “chasing group” as many of these deals date from a period where the choice of providers was very narrow. IBM and EDS in particular will have to look to their laurels, as it’s clear that clients are casting the net wider. TPI figures reflect this diversity—in the $40m plus bracket, 36 different providers signed more than two contracts, up from 29 in the previous year. Clearly this is partly due to the fact that outsourcing is becoming attractive to smaller and smaller clients. There’s certainly anecdotal evidence to suggest that smaller clients often feel a bit overlooked in the Big Six world. But the Big Six’s share of the Top 50 deals also declined—with more deals going to European and Indian providers.

The march of the Indian providers makes fascinating reading. In 2004 they took just 1% of both contracts and total contract value. Last year this had increased to 6% of contracts and 4% of value. It’s easy to see why Wipro, for example, was able to grow profits by 24% this year.

Figures like this are almost impossible to extrapolate, but I suspect this is only the beginning of the story as far as Indian providers are concerned. They are still facing huge inertial friction with European and US clients—the brands are not well-known, they do not have the client contact based on consultancy or IT assignments. But all that can change very rapidly. Ten years ago very few western executives would have had call to visit India. Now, as a result of outsourcing, many companies have active commercial links with the Sub-continent. It’s not scary or unknown any more. That growing familiarity with Indian business culture may be the biggest threat to the dominance of the Big Six.

Consulting Times: Outsourcing enters a new era

(Also posted at Knowledge Work.)

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