Fight for outsourcing deals intensifies

Competition between IT outsourcing providers is continuing to intensify, spelling more complex procurement cycles but potentially lower prices for customers.

That was the finding of a new report from sourcing advisory firm TPI, which found that while the number of European outsourcing contracts climbed during 2006, the total value of these contracts fell by over a fifth as firms pursued a greater number of smaller, shorter outsourcing deals.

Duncan Aitchison, managing director of TPI in Europe, said that this so-called multi-sourcing strategy was forcing service providers to compete more to win the same quantity of business.

"In general terms, this increased competition is clearly good for buyers," he added. "However, greater diversity and specialisation among suppliers, combined with more frequent tendering, does mean more complexity in both the procurement process and the management of outsourcing contracts."

The reports also noted the growing influence of Indian outsourcing providers at the expense of established US and European firms. Indian companies now account for seven percent of the global outsourcing market, according to TPI, while the Big Six service providers - Accenture, ACS, CSC, EDS, HP, IBM – have seen their market share fall from 71 percent in 2002 to 46 percent in 2006.

"The figures clearly show a maturing of the India-based service providers, as they challenge the established players by taking an incremental approach and signing a large number of small, specialist contracts," said Aitchison. " India-based providers are clearly considered an attractive and credible alternative to traditional players and over the next few years we expect to see them competing directly with the Big Six for larger value contracts."