Back-office Outsourcing: a Buyers' Market

23 July 2009:

Companies considering outsourcing are now in the driver's seat when it comes to negotiating contracts. On top of a big slowdown in the business-process outsourcing business, the offshore market is still recovering from the financial scandal at Satyam Computer earlier this year.

"Satyam made everybody more aggressive," notes David Rutchik, a partner at outsourcing advisory firm Pace Harmon. "We're encouraging clients to revisit their existing deals and look for opportunities in new deals. Buyers have much more of the upper hand than they had over the last few years."

Indeed, outsourcing service providers have clogged pipelines. When the economy stalled more than six months ago, their clients put the brakes on projects - particularly jobs involving back-office services - leaving vendors and the overall outsourcing industry in standby mode.

As a result, the first half of the year has returned dismal results for vendors. Total contract values for agreements worth at least $25 million were down 22% during the first six months of 2009, compared to the same period last year, according to outsourcing advisory firm TPI. And the number of signed contracts was down 11%, with only 135 contracts awarded during last quarter.