14 GlobalServices www. globalservicesmedia.com GS100-2010

COnTRACTS are the lifeline of the outsourcing business: the number of contracts signify the general pace of the business and the size of

the contracts (in terms of total contract value and an-nual contract value) denote the overall momentum of the industry.

It is very clear that contract sizes of less than $50 M (total contract value) are the mainstay of the in-dustry. This is more so for companies in the mid-tier. The dynamics of the band of contract sizes less than $50M is far more interesting. Unfortunately, this re-

search does not offer much visibility into that band. Hence, we look at some published research from TPI Inc. , a sourcing research and advisory company that tracks contracts on a quarterly basis.

From this, we can infer that contract sizes less than $25M are important for not only mid-tier companies but also for Tier 1 companies. There were nearly 600 contracts with total contract value of more than $25M in 2009. ITO contracts clearly lead the way with at least three out of four contracts being an ITO contract, though this is not the case in Fig.1 in the $1B plus cat-

AREA ITO BPO

COMPANY SIZE 1M-10M 10M-100M 100M-1B 1B+ 1M-10M 10M-100M 100M-1B 1B+

CONTRACT SIZES

Less than $50M 197 1203 6260 396 76 337 2404 534

$51M-$99M 5 26 52 16 2 1 44 52

$100 M- $ 299 M 0 16 8 0 0 4 10

201157

231

145105

173148

126161

140 128147

12797

142

All Industrywide Contracts ITO BPO

n 2005 n 2006 n 2007 n 2008 n 2009

Average TCV ($M) of Industrywide Contracts >$25M

FIG.1

FIG.2

53%

23%24%

66%

23%16%

68%

18%15%

67%

16%18%

69%

15%16%

Less than $ 100 M $100M-$199M Greater than$200M

n 2005 n 2006 n 2007 n 2008 n 2009

Relative Percent of Total Contracts Awarded by TCV Band

FIG.3

Contract Sizes: The Lifeline of the Business Contracts below $25 M continue to the most important, even as ITO and BPO contract sizes are

egory because the study sample includes more BPO companies in the $1B plus category.

The above slide from TPI’s presentation clearly shows that from 2006 onwards contract sizes have been shrinking. For example, in 2009, nearly 70% of the contracts were less than $100M in TCV compared to 53% in 2005. The figure also shows that 2009 was a tough year with both ITO and BPO at lowest average TCV level in the past five years. GS

In 2009, almost 70% of all Broader Market contracts were valued at under $100M in TCV.

Both ITO and BPO at lowest average TCV level in the past five years.

Quarter# of Contracts > $25 M TCV

Area

ITO BPO

1Q2009 141 101 40

2Q2009 148 118 30

3Q2009 140 108 32

4Q2009 168 110 58

Total 597 437 160

by Ed Nair

Source: TPI Inc.

Source: TPI Inc.

Source: TPI Inc.

Source: TPI Inc.