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The third-quarter developments in the global outsourcing industry of 2006 saw a decline in contracts by volume and value from the same quarter last year. The cause of the falling aggregate contact values can be tied to the decline in contract durations, especially for Information Technology Outsourcing (ITO) contracts. Since 2001, the average duration of a Broader Market contract has decreased 12 percent. In ITO, it decreased 18 percent, while for Business Process Outsourcing (BPO) it dropped 5 percent; as per the TPI Index report

The TPI index isn’t directly relevant to Indian players in the IT and BPO area, as the research does not differentiate between contracts that are outsourced and ones which are sent offshore. Indian firms get offshore outsourcing contracts, which get buried under the larger outsourcing contracts.

What the TPI research indicates is that multi-year, multi-billion dollar IT outsourcing contracts, which were the forte of global firms like Accenture, EDS, Computer Science Corporation and IBM Global services, are decreasing. On the other hand, the revenues of Indian outsourcing firms in both IT and BPO area continue to show robust growth and increase in new customers sign-ups.

The TPI index report says that in the third quarter of ’06, there was a decline in contracts by volume and value compared to the year-ago period. This is due to the decline in contract duration, especially for Information Technology Outsourcing (ITO) contracts.

Indian software services firms, on the other hand, bid for contracts of less than USD 500 million value, which are typically spread over three-five years. Which is why the revenue growth of Indian firms is unaffected by the overall slowdown in the global outsourcing market.

The value of an outsourcing contract when it is sent offshore to India is always less than when such contracts are signed for outsourcing in the same country. This means that the total value of an offshore outsourcing contract will always be less than a simple outsourcing contract.

Therefore, while the global majors may see a slowdown in their growth, Indian companies will not do so. According to Nasscom, the Indian ITES-BPO segment continued to chart strong year-on-year growth at 37% for FY06. The IT body has also said Indian ITES-BPO exports have grown to USD 6.3 billion in FY06, recording a growth of 37%.

The figure is expected to grow to USD 8-8.5 billion in FY07. Net employment in the ITES-BPO segment has grown by about 100,000 in FY06, taking the total direct employment in this segment to 415,000, the body has said in its factsheet about the industry, as per the report.