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Tech deals grow 3 per cent in 2011 amid market uncertainty

The latest TPI Index, published on January 18, states that total contract value touched a whopping $95 billion for full year 2011, an inch up of three per cent over 2010.

twitter-logo Goutam Das        Last Updated: January 20, 2012  | 08:20 IST

Goutam Das
Goutam Das
The IT services marketplace is hale and hearty, if we are to go by the latest TPI Index, a guide to commercial outsourcing contracts worth $25 million or more. The index, published on January 18, stated that half of all mega deals in 2011 were awarded in the December quarter itself. Everything must be just fine with Europe as well since 80 per cent of all mega deals awarded during the year were from Europe, Middle East and Africa (EMEA).

Mega deals have total contract value (TCV) of $1 billion or more. Here are the happy numbers: Deals with a TCV of $26.4 billion were awarded by global enterprises to IT service providers in the December quarter of 2011, a seven per cent rise over the year-ago quarter. Mega deals dropped three per cent compared to the same period a year ago but jumped 22 per cent sequentially. Deals from the troubled EMEA rose 17 per cent on a year-on-year basis. American enterprises awarded 22 per cent more deals measured in TCV than they did in the fourth quarter of 2010.

TCVs touched a whopping $95 billion for full year 2011, an inch up of three per cent over 2010 - the highest number recorded since 2005.

How can this be? There was enough market uncertainty since September. So what kept the IT budgets going? The fact is that all deals that are more than $25 million in size take a long time to cook - between three and six months. Contracts awarded in December, therefore, were probably floated in the June quarter, a period when things either looked rosy or hopeful in many parts of the world.

Siddharth Pai, partner at the NASDAQ-listed Information Services Group that compiles the index, says that the December quarter is seasonally one of the strongest periods. "Deals may stay longer in the pipeline now with uncertainty in the business environment. There is a lag effect and this may reflect in the coming two quarters," he tells.

Nevertheless, the Information Services Group, which provides advisory services, expects five to seven per cent growth in 2012 in contracts from the Asia Pacific region and a similar percentage rise in business process outsourcing (BPO) deals. Cost take out initiatives by enterprises should logically translate into more business process outsourcing.

One needs to be cautious even here - the 2009 downturn never gave the Indian BPO industry any booster dose. BPO has lagged IT services growth rates over the last eight years, despite being a much smaller industry. In a report prepared last year, Citigroup pointed out that IT exports grew at a CAGR of 26 per cent since fiscal year 2004 compared to 24 per cent CAGR for BPO exports. CAGR is short for compound annual growth rate.

Given the protectionist rhetoric in the US, it would be surprising if the BPO sector can do any better.

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