Bottom falls out of US outsourcing market

US outsourcing operators are suffering from a "dramatic shift" in the global market as customers ditch America for Europe and Asia-Pacific, new research warns.

The latest Quarterly Index from sourcing advisers TPI shows that some $5.2bn of outsourcing deals were struck in the Americas in the first three months of this year, a decrease of some 70 per cent on the first quarter of 2006.

Indeed, the 27 contracts awarded in the US during the first three months of this year represent the fewest quarterly contract awards since 2001.

By contrast, the total value of contracts awarded in Europe rose to $9.7bn, up 67 per cent, while Asia-Pacific experienced a 30 per cent increase in the value of first quarter deals from $2.1bn in 2006 to $2.7bn in 2007.

Duncan Aitchison, managing director of TPI, said: "This shift in market activity from the Americas to Europe can principally be explained by the US' far greater maturity as an outsourcing market.

"Europe and Asia-Pacific are newer to outsourcing and their markets have more potential to grow.

"That said, the significance of these developments from the perspective of outsourcing providers should not be underestimated. Europe will become increasingly important to the service provider community."

The TPI Index also reveals that the worldwide outsourcing market declined by 31 per cent when comparing the total value of broader market contracts let in the first quarter of 2007 ($17.6bn) with the first quarter of 2006 ($25.4bn).

This year saw the lowest total contract value of outsourcing deals in any first quarter of the past five years.

"Contract awards worldwide have got off to a much slower start this year than traditionally seen in the first quarter, portending a softer outsourcing market for all of 2007, and continuing the slowdown of the global outsourcing market which first became apparent in the second half of last year," said Aitchison.

"While the decline in the total value of deals is in part due to shorter and therefore lower value contracts, this is not exclusively the case. The US' current reluctance to outsource is also a contributory factor."