The ‘Big Six’ of outsourcing –Accenture, ACS, CSC, EDS, HP, and IBM – saw their combined market share fall by well over half (57%) in the first quarter of 2005, according to the latest Quarterly Index from TPI. They have won only 27% of the €11 billion ($14.2 billion) of major contracts (those worth over €40 million) awarded so far this year, compared with 63% in the first quarter of 2004. Non-Big Six firms have secured the majority (64%) of new deals against 45% a year ago.

Duncan Aitchison, Managing Director, International with TPI, the leading sourcing advisory firm, comments: “So far in 2005 a number of smaller companies have successfully challenged the Big Six, continuing the trend we saw in 2004. The growing number of service providers successfully contending for deals could indicate further competition for the Big Six and an increasing choice of suppliers for clients this year.”

The providers who gained on the Big Six include Atos Origin (four contracts worth €800 million), British Telecom (seven contracts totaling €3.6 billion) and Hewitt (four contracts and over €600 million). 

The Big Six particularly lost ground in information technology outsourcing (ITO). Most of this shortfall was in Europe, where their market share fell to only 18% of the €6.9 billion of major contracts signed so far this year, compared with 36% on average during 2004.

The Big Six rallied somewhat in their share of the global business process outsourcing (BPO) market, winning a third of all BPO contracts over €20 million signed in the first quarter, an increase of 10% on their share of contracts let in 2004. However, this slight increase was driven largely by a massive €460 million contract between British Telecom and Accenture for HR outsourcing.

Without this contract the Big Six’s share of new contracts would have fallen in BPO as well as ITO.

Offshoring boosts competition

Very little information is available on the breakdown of outsourcing between onshore and offshore operations. However, an examination of deals on which TPI has advised reveals a 43% increase in deals involving offshore components or ‘global service delivery’, up from 40% in 2003 and 2004 to 57% in the first quarter of this year.

Recent TPI research conducted among UK senior management responsible for offshoring decisions, reveals that 60% see the large Indian outsourcing providers as offering a service to rival that of Western suppliers irrespective of the cost savings. TPI believes growing confidence in Indian providers could have a further impact on the Big Six.

Aitchison comments: “To date, offshore outsourcing has been good news for the Big Six. Their established presence in India has enabled them to offer clients the benefits of offshore cost savings with the ‘reassurance’ of working with an established provider. But, as confidence in Indian providers grows, this advantage could diminish.

“One development that could further affect the Big Six’s competitive position is the growing number of mergers and acquisitions taking place between Indian and Western suppliers in order to respond more fully to the growing offshore market. While some of this M&A activity involves the Big Six, such as IBM’s purchase of India’s third largest BPO provider, Daksh, most does not. This market consolidation is creating more credible competition to Big Six providers.  Only time will tell whether any of the rising contenders will win a place in a new elite.”

Europe’s dominance in global outsourcing market continues to grow
Europe’s share of the total value of new outsourcing deals more then doubled in the first three months of 2005, accounting for 70% of just over €11 billion of contracts awarded, compared with a share of just 34% in the same period last year.

Aitchison explains: “While some may argue that Europe’s €2.4 billion mega deal – the Reuters/BT contract – skews the results for this first quarter, Europe still accounted for well over half (57%) of new contracts worldwide – a high point for European outsourcing.” 

UK overtakes US as leading market for new outsourcing contracts for the first time

The UK overtook the US for the first time to become the leading national market for new outsourcing contracts in the first three months of 2005.  TPI data reveals that the UK represented over 37% of the market for major outsourcing contracts awarded worldwide so far this year, with the US standing at 25% and Asia Pacific at 4%.

“This huge increase in outsourcing in the UK was very largely driven by the massive deal between Reuters and BT, which represented over half (58%) of the contract value let in the UK. It is highly questionable, therefore, whether the UK’s lead over the US will be sustainable over a longer period,” says Aitchison.

Without the Reuters/BT deal the UK would have been the second largest national market with 16% of new contracts worldwide.