Everest Group Q2 Report: Captive Announcements Soar to Record High; Outsourcing Transactions Remain Steady

Report includes focus on Latin American sourcing market

DALLAS--(BUSINESS WIRE)--The global outsourcing and offshoring market saw 61 captive announcements in the second quarter – a 42-month record high – while overall transaction activity remained steady with the signing of more than 500 outsourcing deals, according to Everest Group, an advisory and research firm on global services. Outsourcing transactions saw a marginal increase of 2 percent for the second quarter and an increase of 4 percent compared to Q2 2010. A one-hour webinar will be held August 10, 9 a.m. CDT, to present study findings and insights and will include a special feature, “What Service Providers Say About Clients,” presented by Dr. Mary Lacity, professor of information systems at the University of Missouri-St. Louis.

“While the global sourcing market continues to see steady transaction activity, we continue to see strong adoption of the captive model and no divestitures. During the second quarter, captive adoption has become more broad-based as evidenced by the large number of captive announcements to support organizations’ research and development functions”

Everest Group’s Market Vista: Q2 2011, a quarterly report on global outsourcing and offshoring activity, reports first quarter global transaction volumes reached about US$2.5 billion in annual contract value (ACV). Compared to Q1 2011, the Business Process Outsourcing (BPO) market saw transactions decrease by 7 percent while IT Outsourcing (ITO) transactions saw an increase of 8 percent. ITO transactions in the BFSI (banking, financial services and insurance) sector and BPO transactions in the Healthcare sector witnessed significant growth compared to Q1 2011.

Other second quarter 2011 findings include:

• Most captive announcements were in Asia while Eastern Europe and Africa also witnessed several announcements. A trend of no captive divestitures continued.
• North America and Europe accounted for nearly three-fourths of all outsourcing deals signed during the quarter, but transaction activity slowed in North America while activity in the United Kingdom and Rest of Europe rose marginally.
• Overall volume of renewals and restructured deals decreased 5 percent compared to the previous quarter, but ITO deal renewals and restructures increased 8 percent.
• Although no deals were signed with contract values over US$1 billion, 52 deals were recorded with contract values between US$200 million-$1 billion.
• Offshore activity saw 45 delivery centers established in the second quarter compared to 46 in the previous quarter. Significant activity occurred in Eastern Europe and Africa.
• Service providers’ consolidated revenues grew marginally in Q1 2011 versus Q4 2010, but consolidated margins fell over the same period. (Financials lag other service provider activity by one quarter.)

“While the global sourcing market continues to see steady transaction activity, we continue to see strong adoption of the captive model and no divestitures. During the second quarter, captive adoption has become more broad-based as evidenced by the large number of captive announcements to support organizations’ research and development functions,” said Eric Simonson, managing partner of Research. “Market activity continues to reflect the emergence of hybrid sourcing models as organizations work to extract maximum impact from sourcing.”

Everest Group’s quarterly Market Vista reports provide data and analysis of deal trends in the outsourcing and offshoring market, captive landscape, current and emerging locations and key service provider intelligence insights. Everest Group’s industry trends research complements the Market Vista reports through quarterly updates focused on industry-specific global sourcing data, developments and insights across the BFSI, MDR (manufacturing, distribution and retail), Healthcare and Energy and Utilities sectors.

The Market Vista Q2 report also includes these focus sections:

• Latin America: analysis of labor arbitrage sustainability, operating costs, operating cost inflation, arbitrage sustainability and currency trends. Cities profiled include Mexico City and Monterrey, Mexico; Sao Paulo and Rio de Janeiro, Brazil; Santiago and San Jose, Chile; and Buenos Aires, Argentina.
• Location optimization insights include a focus on the impact of the rise in visa rejection rates in the United States, continued optimism for Africa despite recent political events and the threat of terrorism in India.

Quarterly Market Vista reports comprise key developments among 20 leading global service providers. Traditional service provider profiles include Accenture, ACS Xerox, Atos, Capgemini, Convergys, CSC, AON Hewitt, HP Enterprise Services, IBM, Dell Services and Unisys. Offshore-centric service provider profiles include Cognizant, EXL, Genpact, HCL, Infosys, Mahindra Satyam, Tata Consultancy Services, Wipro and WNS.

The webinar will be held August 10, 9 a.m. CDT; 2 p.m. GMT Standard Time. To register, please visit: research.everestgrp.com/Events/Webinars.

Market Vista is a subscription service with four reports published per year, including location datasets, Breaking Viewpoint briefings, Market Vista Primer and Global Locations Insights newsletter. For information about the Market Vista: Q2 2011 report or other research services, please visit research.everestgrp.com, e-mail [e-mail] or call [phone].

For insights about the health and evolution of the captive model, Everest Group recommends its recent study, Captives are Staying Alive.

About Everest Group

Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies and management approaches. Established in 1991, Everest Group serves users of global services, providers of services, country organizations and private equity firms, in six continents across all industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com.