Global IT-BPO Outsourcing Deals Analysis 3Q14 Analysis July September 2014

Transcription

1 Global IT-BPO Outsourcing Deals Analysis 3Q14 Analysis July September 2014 October 2014

2 About Global IT-BPO Outsourcing Deals Analysis Global IT-BPO Outsourcing Deals Analysis is a quarterly analysis of IT-BPO outsourcing contracts signed across industries and geographies, with a total contract value (TCV) of USD 5 million and above per deal. The KPMG Shared Services and Outsourcing Advisory (SSOA) publishes this analysis quarterly. Methodology & limitations of the study: The KPMG analysis and findings presented in this report are based on select third party deal database including publicly available outsourcing data as identified throughout this presentation. It does not include contract information gathered from KPMG Sourcing Advisory business engagements. The count and value of the deals may vary notably in reality and is only indicative of market movements and trends in the IT-BPO space. Readers are requested to use their discretion while assessing the global IT-BPO market accordingly For more information on this market research please get in touch with Shailesh Narwaiye (snarwaiye@kpmg.com). Disclaimer: The information contained here in is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 1

3 Contents Section 1: Global Deals An overview Section 2: 3Q14 Deal Analysis Section 3: IT-BPO Outsourcing Outlook

4 Section 1 Global Deals An overview

5 The Summary Key Messages In 3Q14 (July September 2014), 197 ITO contracts worth USD 17.1 billion and 103 BPO contracts worth USD 17.9 billion were signed worldwide Globally 24 IT-BPO bundled deals were signed in 3Q14 with contract value worth USD 4.8 billion In terms of value, approximately 70 percent of deals by value originated from the United States, followed by Spain at more than 5 percent. Brazil and India were two other key outsourcing markets The average deal tenure has been consistently increasing since 1Q14, with an increase of one month as compared to 2Q14 to 4 years 7 months in 3Q14 Defense and Government sectors continue to be the top consumer of IT-BPO services contributing to 44 percent and 30 percent respectively in terms of value of all outsourcing deals signed in 3Q14 ICT Services and BPO Bundled Services contributed USD 5.5 billion and USD 8.5 billion respectively and were the largest procured services globally within ITO and BPO outsourced services respectively Average annualized contract value in 3Q14 was USD 24.9 million as compared to USD 27.7 million in 3Q13 showing minor decrease between the two quarters 4

6 Global Quarterly Deal Movements Snapshot Quarterly movements of global IT-BPO deals* 3Q13 Number of Deals 1,464 +9% Number of Deals 1,590-7% 516 Number of Deals 1,473-25% 3Q14 Deal Value Total Deal Value +24% USD billion Total Deal Value USD billion -3% Total Deal Value USD billion No. of deals 3Q % 3Q Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Value (USD billion) No. of deals *The term deals is interchangeably used with contracts throughout the analysis unless otherwise specified. Deals analyzed are global sourcing contracts of size USD 5.0 million and above only. The total deal value has been steadily increasing since the beginning of 2014 with 3Q14 experiencing a 37 percent growth as compared to the previous quarter. The number of deals have also consistently increased since 1Q14 3Q14 witnessed an decrease in both the total value of deals and the number of deals as compared to 3Q13 5

7 Annualized Contract Value (ACV) Q-o-Q Comparison 3Q14 3Q13 3Q12 3Q11 Annualized* contract value comparison per quarter 7,719 7,440 8,067 31% decrease 11,703 4% increase 52% increase 3Q14 3Q13 3Q12 3Q % decrease years 7 months 4 years 9 months 4 years 4 months 5 years 1 months ,500 5,500 7,500 9,500 11,500 13,500 Total Annualized Contract Value (USD million) * Annualized contract value = ( total value of a contract / tenure in months ) x 12 Contract value for contracts having tenure less than 1 year is considered as annualized value for the analysis. Graph is not to scale and only represents the division across different parameters Minimum annualized Maximum annualized contract value contract value Note: All values in USD million unless otherwise specified Average annualized contract value (USD million) Average tenure per contract Total annualized contract value has sharply decreased by 31 percent as compared to 3Q13 with the average annualized contract value displaying only a 10 percent decrease over the same period There was a nominal change in average deal tenure with tenure being 4 years 7 months in 3Q14 as compared to 4 years 9 months in 3Q13 6

8 Sector Analysis Q-o-Q Comparison Sector Trends in deal movement from 3Q13 to 3Q14 Total Contract Value Total Number of Contracts Average Contract Value 3Q13->4Q13 4Q13->1Q14 1Q14->2Q14 2Q14 -> 3Q14 3Q13->4Q13 4Q13->1Q14 1Q14->2Q14 2Q14 -> 3Q14 3Q13->4Q13 4Q13->1Q14 1Q14->2Q14 2Q14 -> 3Q14 Automotive & Aerospace 933% -86% 2153% -92% 60% -50% 50% -67% 545% -72% 1402% -76% Banking & Financial Services -43% -41% -5% 141% -34% 8% -7% -24% -14% -45% 3% 218% Defense -55% -81% 195% 219% -37% -78% 213% 132% -29% -11% -6% 37% Energy & Utilities 72% 34% 39% 51% -11% -44% 0% 111% 93% 138% 39% -28% Government -74% -51% 277% 28% -54% -5% 75% -18% -43% -49% 116% 57% Insurance 2445% -67% 54% -50% 700% 13% -56% -25% 218% -71% 246% -33% Manufacturing 128% 9% 24% -81% 169% -31% 8% -50% -15% 60% 15% -63% Pharma & Healthcare -76% 943% -30% -90% -56% 275% -53% -43% -45% 178% 50% -82% Publishing, Media & Entertainment 1620% -99% 4222% -73% -33% -50% 350% -67% 2481% -98% 860% -18% Retail -73% 71% -53% 35% -50% 0% 67% -50% -46% 71% -72% 170% Telecom 5% 175% -81% 24% 100% -4% -30% -23% -48% 188% -72% 60% Travel & Logistics -9% 494% -79% 18% 17% 29% -56% 25% -22% 362% -53% -5% Others* -48% 221% -58% -70% -9% 10% -5% -24% -43% 192% -56% -61% *Others: Construction, Consumer & Recreational Services, Education, Professional services, Securities and investment services, Social services, Trade unions, Technology, Wholesale Decrease >=25% Decrease <25% No change Increase <25% Increase >=25% Defense, Banking and Financial Services, Energy & Utilities, Retail and Government sectors exhibited > 25 percent growth in terms of value over 2Q14. All the sectors which had a negative growth have had >25 percent decrease in total contract value Defense, Energy & Utilities and Travel & Logistics sectors displayed >25 percent increase in number of contracts in 3Q14 over 2Q14 7

9 Deal Analysis Q-o-Q Comparison Trends in deal movement from 3Q13 to 3Q14 Deal Type Total Contract Value Total Number of Contracts Average Contract Value 3Q13->4Q13 4Q13->1Q14 1Q14->2Q14 2Q14 -> 3Q14 3Q13->4Q13 4Q13->1Q14 1Q14->2Q14 2Q14 -> 3Q14 3Q13->4Q13 4Q13->1Q14 1Q14->2Q14 2Q14 -> 3Q14 ITO -59% 14% 15% -33% -20% -11% 12% -25% -48% 27% 2% -11% BPO 38% -72% 24% 693% -44% -65% 141% 151% 147% -20% -48% 216% Bundled 60% -46% 21% 285% 89% -47% 44% 85% -15% 3% -16% 109% Less than USD 100 MN -14% -24% 27% 1% -15% -19% 1% 13% 1% -7% 25% -11% Betw een USD MN -51% -38% 100% -5% -43% -29% 134% -36% -15% -13% -14% 49% More than USD 500 MN -59% 66% -58% 247% -38% -20% -63% 567% -34% 108% 13% -48% Less than 1-year 145% -63% -40% 108% 26% 0% -24% 35% 95% -63% -21% 54% Betw een 1 to 5-years -33% 35% -27% 39% -15% -19% -5% 15% -22% 66% -24% 21% More than 5-years -64% -65% 270% 32% -57% -43% 285% -29% -17% -39% -4% 86% Decrease >=25% Decrease <25% No change Increase <25% Increase >=25% BPO and bundled deals have had >25 percent increase in terms of TCV as well as number of contracts over 2Q14, while, ITO deals have shown a decrease in both parameters for the same period Unlike the previous quarter deals more than USD 500 MN have shown an increase both in terms of value and numbers while deals between USD MN and deals less than USD 100 MN have shown a relatively decreased growth in terms of TCV as well as number of deals Deals across all tenure categories have displayed an increase in both TCV and Average Contract Value while only the deals with tenure more than 5 years have shown a decrease >25 percent in terms of number of deals in 3Q14 over 2Q14 8

10 Geography Analysis IT-BPO deals across geographies: Q-o-Q Comparison * Deals originating from the geography 36.8 AMERICAS 1, Geography-wise break-up of deals* Q12 Q Q13 Q Q Q Total Contract Value (USD billion) 126 No. of Contracts EMA Q Q Q ASPAC Q Q Q14 AMERICAS continues to be the major outsourcing region contributing 79 percent of the total deal value in 3Q14 EMA has displayed a sharp decline in terms of value, with a 57 percent dip in 3Q14 as compared to the previous quarter ASPAC witnessed a growth of 6 percent in total deal value as compared to 2Q14 which is slightly better than the 10 percent negative growth in 2Q14 as compared to 1Q14. Average deal size has also improved in the region in 3Q

11 Deal Value (USD billion) Sector Analysis IT-BPO deals across sectors by value and numbers TCV : USD 39.8 billion No. of contracts: 324 Sector-wise break-up of deals (4Q13 to 3Q14) Banking & Financial Services Insurance Automotive & Aerospace Travel & Logistics Manufacturing Energy & Utilities Pharma & Healthcare Publishing, Media & Entertainment *Others: Construction, Consumer & Recreational Services, Education, Professional services, Securities and investment services, Social services, Trade unions, Technology, Wholesale Graph is not to scale and only represents the division across different parameters. Figures may not add up to 100 percent due to rounding off Retail Telecom Others * Defense Government 74 4Q13 1Q14 2Q14 No. of contracts Q14 87 The Defense and Government sectors contribute to 44 percent and 30 percent of TCV in 3Q14 Defense and Banking and Financial Services sectors have exhibited multifold growth in TCV in 3Q14 as compared to 2Q14 10

12 Section 2 3Q14 Deal Analysis

13 Deal Value Global sourcing snapshot July to September 2014 IT-BPO deals* signed in 3Q14 (Total Contract Value = USD 39.8 billion) 100% 90% 80% 70% Bundled 4.8 ASPAC 2.2 EMA 6.2 More than USD 500 MN 16.1 More than 5-years Hybrid 22.6 Others Transactional # Total contract value 60% 50% BPO 17.9 USD 39.8 billion 40% 30% Americas 31.3 Between USD MN 16.6 Between 1 to 5-years % ITO 17.1 Fixed Price % 0% Less than USD 100 MN 7.1 Less than 1-year 0.9 Services Region Contract Value Tenure Pricing * Deals analyzed are USD 5.0 million and above only, throughout the analysis. Graph is not to scale and only represents the division across different parameters. Figures may not add up to 100 percent due to rounding off # Hybrid pricing includes a combination of various pricing mechanisms In 3Q14, there have been almost equal ITO and BPO deals in terms of value with their respective shares being 43 percent and 45 percent AMERICAS is the largest outsourcing region contributing 79 percent of the total deal value in 3Q14, followed by EMA with 16 percent contribution to total deal value Deals > 100 MN contribute to 82 percent in value terms while deals >1-year contribute to 98 percent in value terms 12

14 Number of Deals Global sourcing snapshot July to September 2014 IT-BPO deals* signed in 3Q14 (Total Number of Contracts = 324) 100% 90% 80% 70% Bundled 24 BPO 103 ASPAC 20 EMA 93 More than USD 500 MN 20 Between USD MN 66 More than 5-years Hybrid 133 # Others Transactional Total contracts % 50% 40% 30% 20% ITO 197 Americas 211 Less than USD 100 MN 238 Between 1 to 5-years 218 Fixed Price % 0% Less than 1-year 35 Services Region Contract Value Tenure Pricing * Deals analyzed are USD 5.0 million and above only, throughout the analysis. Graph is not to scale and only represents the division across different parameters. Figures may not add up to 100 percent due to rounding off # Hybrid pricing includes a combination of various pricing mechanisms 3Q14 saw a multifold increase in BPO deals with an increase of 151 percent while there has been a decrease of 25 percent in ITO deals in terms of number of deals signed Overall deal numbers have increased by only 3 percent with the split of the deals across the regions being very much similar to what it was in 2Q14 There has been a strong preference shown to medium to longer tenure deals which has been indicated by the ~90 percent number of deals being contributed by the deals > 1 year 13

15 Total Value of contracts (USD Billion) Services Segmentation ITO Services Analysis of ITO deals 3Q ICT Services 21.3% SI 27.9% ADM 17.8% Other IT Services 1.5% IT Consulting 1.5% IT Infrastructure 7.1% IT Products 5.6% IT Bundled services 13.7% 0 0 ERP % Number of Deals ADM ERP ICT IT IT IT IT SI Other IT Total Bundled Consult. Infra. Products Services ITO Value of contracts (USD Billion) Note: Size of bubble indicates percentage share of the total number of ITO deals SI System Integration, Other IT services Software testing, IT helpdesk support services, Cyber security Note: All values in USD billion. Scale of graph is just representative to illustrate the division across different parameters. Figures may not add up to 100 percent due to rounding off. Refer L.H.S. figure for legend TCV of ITO deals decreased by 33 percent in 3Q14 as compared to 2Q14, and total count of the deals decreased by 25 percent over same period ICT Services, System Integration and ADM services together contributed to more than 80 percent of all ITO deals in terms of value during 3Q14. These are also the same services which have increased in value as compared to 2Q14 whereas almost all other services displayed a decrease in deal value 14

16 Total Value of contracts (USD Million) Services Segmentation BPO Services Analysis of BPO deals 3Q14 10,000 9,000 BPO Bundled services 37.9% 640 8,000 7,000 Other BPO Services 25.2% ,000 5, ,881 4,000 3,000 2,000 1,000 HRO 1.0% KPO 7.8% CRM 2.9% Content Management 8.7% Transactional Services 14.6% F&A 1.9% Number of Deals Note: Size of bubble indicates percentage share of the total number of BPO deals Other BPO services Service desk monitoring services, Procurement 8513 BPO Bundled Services Content CRM F&A HRO KPO Other Transactional Mgmt. BPO Services Services Value of contracts (USD Million) Note: All values in USD million. Scale of graph is just representative to illustrate the division across different parameters. Figures may not add up to 100 percent due to rounding off. Refer L.H.S. figure for legend 3Q14 experienced increased heightened market activity in terms of BPO deals with TCV increasing by nearly 695 percent and deal count by 151 percent as compared to 2Q14. This is largely due to ~ USD 15 billion worth of Government and Defense BPO services deals which is not a typical scenario each quarter BPO Bundled Services, Other BPO Services and Transactional Services together contribute 92 percent of all BPO deals in terms of value during 3Q14 Total BPO 15

17 Section 3 IT-BPO Outsourcing Outlook

18 Outlook Global Outsourcing Industry The total contract value in 2014 has been steadily increasing each quarter at a CAGR of 26% since the beginning of the year. The number of deals have also consistently increased in the same time frame. We anticipate the positive trend to continue in the last quarter of the year too The contribution of BPO deals to the overall TCV was ~50% in 3Q14 due to few deals in the Defense sector and does not indicate a change in trend. We expect majority deals (~80% - 90%) to remain in the ITO sector in the coming quarters as has been usually observed each quarter Services and outsourcing have entered a critical phase of disruption. Providers need to prove they can do more than basic operations, otherwise outsourcing runs the risk of becoming a staff augmentation model for flexing operations as opposed to a strategic partnership between provider and buyer Both shared services and outsourcing are on the rise. KPMG survey* indicates one in four enterprise buyers are reinvesting heavily in their global shared services operations, while seven out of ten are continuing to make (largely moderate) investments in their outsourcing delivery Buyers are shifting more of their higher-value work into their offshore shared services. *Three out of ten enterprises are increasing the offshore component of their finance and accounting, over the next year, with similar trends are occurring across IT, procurement, HR, industry-specific, and customer service functions Analytics and process automation technologies have emerged as critical technologies to drive better outcomes for clients. *Close to half of buyers now see these two technologies as adding significant value in their outsourcing engagements * Source: Executive report: The State of Services & Outsourcing in 2014, Sep. 2014, KPMG Institutes 17

19 KPMG Shared Services and Outsourcing Advisory (SSOA) Research Latest from the KPMG Shared Services and Outsourcing Institute Why Does Governance Matter in IT Outsourcing? The Governance Solution Blueprint Report Cliff Justice on Automation s Challenge to Labor Arbitrage About KPMG Institutes KPMG Institutes is dedicated to helping organizations and their stakeholders identify and understand emerging trends, risks and opportunities. We do this by creating an open forum where peers can exchange insights, share leading practices, and access the latest thought leadership. As a result, corporate executives, business managers, industry leaders, government officials, academics, and others have access to the thought leadership and knowledge they can use to make better informed decisions and meet their marketplace challenges. To learn more log on to Advice Worth Keeping Blog: Advice Worth Keeping podcast series: 18

20 Your KPMG contacts Stan Lepeak Director Global Research, Management Consulting KPMG in the US Viral Thakker Partner Advisory Services KPMG in India Jehil Thakkar Partner Advisory Services KPMG in India

21 KPMG Shared Services and Outsourcing Advisory (SSOA) Analyst Team Contact: Shailesh Narwaiye KPMG in India Analysts: Harish Baliga Esther Jaydevi 2014 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm visà-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative ( KPMG International ).