16th Janauary 2006
The 'Big Six' of outsourcing - Accenture, ACS, CSC, EDS, HP, and IBM - could see their dominance challenged, with almost $100 billion worth of major outsourcing contracts due for renewal internationally in the next two years, according to the latest Quarterly Index from TPI, the advisory firm. The Big Six are the incumbent service providers on 72% 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.

Duncan Aitchison, Managing Director of TPI, commented:

"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."

An examination of the deals on which TPI advised in 2005 reveals that over 70% of contracts were competitive - an all time high and up by over a third, from 53% in 2004.These figures are particularly worrying for the Big Six, says TPI, as the offshore market continues to grow.

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. Of these 70% were small to medium sized contracts (those worth $50 - $200 million), up from 65% in 2004 and 61% in 2003. Whilst Indian providers rarely win deals over $200 million, below this threshold, in 2005 they were invited to pitch for 30% of contracts and went on to win 70% of these.

Duncan Aitchison added:

"When the Big Six and the Indian providers go head-to-head it typically occurs on smaller deals. Indian suppliers have been extremely successful in winning these deals and then growing the business through additional work orders. However, with both the Big Six and the Indian providers rapidly expanding their global operations to meet the increasing demand for offshoring, the intense competition in this market looks set to continue."