While the recessionary business climate is expected to fuel long-term growth for outsourcing as companies initiate cost-saving organizational changes, the short-term prognosis for new deals is less optimistic, according to a survey of service providers by advisory firm EquaTerra Global Research.
About 23% expect their business process (BPO) and IT (ITO) outsourcing pipeline expansion to slow in the fourth-quarter, compared to an average of just 7% of service providers reporting declining expectations during the last four years. Those reporting bigger pipelines also dropped to 41%, well below the 55% average recorded since 2004, when the survey was initiated.
"While there is a lot of interest, it can be difficult to consummate new deals," says Stan Lepeak, EquaTerra managing director of global research. "Efforts have slowed or stopped as companies hold back on major strategy decisions. Planning is difficult when you don't know what your company will look like in a few years," Lepeak says.
For companies that forge ahead, conditions are changing. Pricing is more aggressive, according to half the respondents. Also, buyers are bundling and managing efforts by function; establishing multi-sourcing agreements at the corporate level and shifting from longer projects (averaging five years) designed to improve end-to-end business processes to shorter term contracts that bring immediate cost savings and reduce capital outlays. In the latter case, more organizations are building in checkpoints that let users evaluate results after, perhaps, a couple of years, with an option to renew, renegotiate or cancel the contract at that time.
Meanwhile, outsourcing demand was reported mixed across industries, regions and services. It was much stronger in Europe, for example, than in the U.S., with 64% citing increased demand in Europe, compared with 25% domestically. Demand was slightly stronger for BPO (58%) than ITO (39%). Deals for financial and accounting services were stronger than those for ITO and other BPO business, with expectations of increased business in modeling and analytics.
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