Sourcing Market Falls Short of Year-Ago Performance, Shows Sequential Growth

4Q10 Global TPI Index data show decade-long move to smaller awards, multi-sourcing

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Jan 20, 2011, 11:30 ET

STAMFORD, Conn., Jan. 20, 2011 /PRNewswire/ -- TPI, the largest sourcing data and advisory firm in the world and an Information Services Group company (Nasdaq: III), today released fourth-quarter and full-year 2010 data showing the global outsourcing market fell short of its quarterly and annual performance a year ago but still finished the year with substantial sequential growth.

The 4Q10 Global TPI Index, which measures commercial outsourcing contracts valued at $25 million or more, recorded total contract value (TCV) of about $22 billion, down 30 percent from the same period in 2009 but up almost 30 percent from the third quarter of 2010. The market showed particular strength in IT outsourcing (ITO) and Europe, the Middle East and Africa (EMEA). For all of 2010, global TCV fell 11 percent to $79 billion.

An analysis of TPI Index data through 2010 also shows clients steadily migrating towards smaller contract awards and multi-sourcing over the last decade. Since 2000, the percentage of large companies operating in a multi-sourced environment rose from 30 percent to 53 percent, with almost half of those now using more than three service providers. And while some have begun consolidating their service provider relationships down to a select group of strategic partners, there has not been a swing back to single-sourcing.

"As they have grown disillusioned with single-source arrangements, global organizations are increasingly opting to employ multi-sourcing strategies," said John Keppel, Partner and President-Information Services & Chief Marketing Officer, TPI. "By using multiple providers, they can customize their sourcing solutions and leverage the skills of the best in each market. We expect the preference of companies to multi-source will continue to grow as it allows them to tap the best talent possible for their needs."

Now in its 33rd consecutive quarter, the TPI Index provides a quarterly snapshot of the sourcing industry for clients, service providers, analysts and the media. It is the industry's authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.

The 4Q10 Global TPI Index found that ITO continued to drive the overall market. TCV of $19 billion was down 19 percent year-over-year but up 60 percent sequentially. For the year, ITO declined 4 percent compared with 2009. Application Development & Management (ADM) contracts with Infrastructure included were a bright spot for the year, nearly doubling in value.

The market for business process outsourcing (BPO) suffered another challenging quarter. TCV in this segment fell 63 percent year-over-year and 40 percent sequentially to $2.8 billion. For the year, BPO TCV dropped 31 percent, or almost $8 billion, making it a critical swing factor for the overall market's performance. Bucking the trend was Human Resources outsourcing, which recorded its best TCV in three years as buyers cautiously returned to the market.

None of the regional markets experienced full-year growth in 2010. EMEA had a robust fourth quarter, nearly doubling its TCV sequentially, but was still down 14 percent for the year. Asia Pacific also experienced a strong quarter, up 80 percent both sequentially and year-over year, but its TCV still declined 24 percent for the year. In the Americas, TCV was very weak at $4 billion, down 56 percent year-over-year and 43 percent sequentially, but slipped just 3 percent for all of 2010 due to a very strong first half of the year.

Among the traditional sectors driving overall market performance, Financial Services was up slightly, returning to its pre-recession TCV of $25 billion, with Banking, the largest subsector, turning in its best performance ever. However, restructurings accounted for 42 percent of Financial Services TCV. Telecom & Media awarded only half of the TCV of 2009, representing the most dramatic change of any sector, and Manufacturing also declined.

Restructuring activity, defined as contracts that were renewed, renegotiated or restructured, dropped in the fourth quarter but surged 39 percent for the full year, accounting for one-third of the overall market in 2010. Conversely, new-scope contracts declined 25 percent for the year, and the values for new-scope awards were smaller across all three regions as new transactions are not entering the market as quickly as they have in previous periods.

"Looking forward to the first quarter of 2011, as we consider mixed signals from financial analysts, service providers and industry pipelines, we do not anticipate a significant uptick in the market," Keppel said.

To listen to a replay of the 4Q10 Global TPI Index conference call or view presentation slides, visit http://www.tpi.net/knowledgecenter/tpiindex.

About TPI

TPI, an Information Services Group company (Nasdaq: III), is the founder and innovator of the sourcing advisory industry, and the largest sourcing data and advisory firm in the world. We are expert at a broad range of business support functions and related research methodologies. Utilizing deep functional domain expertise and extensive practical experience, our accomplished industry experts collaborate with organizations to help them advance their business operations through the best combination of business process improvement, shared services, outsourcing and offshoring. In 2010, the International Association of Outsourcing Professionals ranked TPI no. 1 in its Global Outsourcing 100: World's Best Outsourcing Advisors. For additional information, visit www.tpi.net.

About Information Services Group, Inc.

Information Services Group, Inc. (ISG) (Nasdaq: III) was founded in 2006 to build an industry-leading, high-growth, information-based services company by acquiring and growing businesses in advisory services, including strategy, implementation and management, and market information, including market measurement, analytics and related product and services. In November 2007, the company acquired TPI, the largest sourcing data and advisory firm in the world. In January 2011, the company acquired Compass, the premier independent global provider of business and IT benchmarking, performance improvement, data and analytics services. Based in Stamford, Conn., ISG has a proven leadership team with global experience in information-based services and a track record of creating significant value for shareowners, clients and employees. For more, visit www.informationsg.com.

SOURCE TPI