1H09: Asia-Pacific and ITO the bright spots

With the 2009 first half results for the sourcing market now out, it's worth digging into them a bit to see what they tell us. The headlines as reported by TPI are:

• Comparing 1H09 with the strong 1H08 shows a significant decline--11 percent fewer contracts, 22 percent less TCV (total contract value) and 28 percent less ACV (annual contract value)


• Key contributors to the drop were a very soft business process outsourcing (BPO) market and sluggishness in EMEA (Europe, Middle East and Africa) as well as drops in traditionally strong industry sectors such as banking and insurance


• Key bright spots were global ITO (IT outsourcing), driven by Network Services, and the Asia-Pacific region.

Asia-Pacific is proving to be a region of growing interest for service providers. Having reached 25 percent of the global ITO TCV in the first half of 2009, and being likely to record the third consecutive year of double-digit growth in annualized revenues (the money being spent on outsourcing services in the year), the Asia-Pacific is a market that can't be easily ignored. While it's unlikely that the strong mega-relationship pace (these are deals with an ACV of US$100M+) from the first half will continue into the second half, increased focus in the region by service providers is likely to yield increased business.

From a buyer's perspective, the sourcing market in the region tends to be dominated by Australia and India as buyers of services. China has become a swing factor with larger network services deals every so often and we may see China gradually increase its share of the buyer's market.

Japan continues to be a conundrum with no real evidence of growth or even stability in terms of new business. Many people ask me about Japan and how the sourcing market data seems disconnected from other numbers in such a large economy and large IT services market. One of the keys is that at a simple level, IT services can be split into consulting, training, system integration projects and outsourcing. While the market in Japan tends to be strong in the first three of those areas, the perception of outsourcing has never been as strong because of a variety of factors.

Looking ahead, as TPI reported, it looks likely that the market in 2009 will surpass the market in the last recession in 2001 but it also looks unlikely that the market will reach its 2008 level. It should be an interesting second half of the year.

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• 1H09: Asia-Pacific and ITO the bright spots

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Michael Rehkopf

Michael has more than 20 years of experience in operations, strategy and sourcing covering all major parts of the globe. He has also worked for Australian, Canadian, German and Japanese companies in both business process outsourcing and IT outsourcing.
Michael's industry experience includes the financial services, manufacturing, telecommunications and travel sectors. He leverages this diverse industry experience and his university background in accounting, IT and his Master of Dispute Resolution, to assist clients in the development of business strategies and the implementation of sourcing strategies. These include the associated evaluation, negotiation and organizational change.
Michael is currently a partner at TPI, the world's oldest and largest sourcing advisory firm. Prior to joining TPI, Michael held leadership positions with Siemens Business Services, OpenPlus International, Mitsubishi Electric and Netron.