TPI Inc, a global sourcing advisory firm, on Tuesday said that they foresee a shift in the trend of outsourcing contracts and the 'Big Six' of outsourcing Accenture, IBM, ACS, CSC, HP and EDS could see their dominance challenged.
According to the latest Quarterly Index from TPI, almost $100 billion worth of major outsourcing contracts are due for renewal internationally in the next two years and the 'Big Six' are the incumbent service providers on 72 per cent of the contract value to be renewed.
TPI's analysis reveals that 325 deals are due for renewal during 2006 and 2007, representing over a fifth of active contracts. The service providers most heavily affected are IBM and EDS, with a combined share of $50 billion in contracts coming up for renewal.
A spokesperson for TPI said: "Although historically, incumbent providers have tended to be retained almost as a matter of course, the increasing level and diversity of competition, coupled with a trend towards selective or single process outsourcing all mean that providers cannot rest on their laurels.
"Client retention will increasingly depend on an incumbent's ability to offer a competitive proposition. This could mean significant changes in price and scope from the original contract."
TPI further said that on the deals they advised in 2005, over 70 per cent of contracts were competitive, an all-time high and up by over a third, from 53 per cent in 2004. "A higher percentage of offshore contracts were competitive (83%), and the Big Six's share of this market is falling. In 2005, they won only 37 per cent of TPI-advised contracts, involving offshoring, down from over half (52%) in 2004," he noted.
Siddharth Pai, partner & MD, TPI India, said, "Another challenge for the 'Big Six', and a particular opportunity for both Indian and specialist outsourcing providers, is the trend towards a larger number of smaller deals. 293 contracts were signed in 2005, more than in any other year."
He added that over 70 per cent were small to medium sized contracts (in the range of $50-$200 million), up from 65 per cent in 2004 and 61 per cent in 2003. "While Indian providers rarely win deals of over $200 million, below this threshold in 2005 they were invited to pitch for 30 per cent of contracts and went on to win 70 per cent of these," he noted.
The trend towards a larger number of smaller single function contracts and the increasing use of multiple providers is creating opportunities for a wider range of providers and driving increased competition to the benefit of outsourcing purchasers and to the further detriment of the 'Big Six', TPI said.
"34 different providers signed the top 100 deals this year, up from 29 in 2004 and 20 in 2003. The Big Six won only 53 per cent of the Top 100 deals in 2005, down from 57 per cent and 73 per cent in 2003," Pai noted.
TPI further highlighted that the Big Six's market share in major outsourcing contracts (those valued at over $50 million) fell to 43 per cent in 2005, down from 49 per cent in 2004 and over 70 per cent back in 2003 and 2002. "These figures demonstrate the maturity of the market and the success of a growing number of service providers outside of the 'Big Six'. An increasing number of providers are now able to compete and win deals and this trend looks set to continue," the spokesperson added.
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