Global IT-BPO Outsourcing Deals Analysis Quarterly Analysis July September 2013

Transcription

1 Global IT-BPO Outsourcing Deals Analysis Quarterly Analysis July September 2013 October 2013

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 every quarter. Methodology: The analysis and findings presented in this report are based on select third party market research and publicly available outsourcing data as identified throughout this presentation. It does not include contract information gathered from KPMG Sourcing Advisory business engagements. 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: 3Q13 Deal Analysis Section 3: IT-BPO Outsourcing Outlook

4 Section 1 Global Deals An overview

5 3Q13 KPMG Global Business Services Pulse Survey Market Overview Macro trends Negative global economic conditions continue to weigh heavily on organizations decisions on how, where, and why they source services globally, though few firms are pulling back from global sourcing of services globalization. Global business services (GBS), combining onshore, near, and offshore shared services and outsourcing, has become the predominant means through which organizations support global operations. Many organizations GBS remain fragmented across functions, geographies, and business units, complicating governance and detracting from potential business benefits. Defined efforts to drive GBS maturity are the norm among more experienced and sophisticated GBS users. Traditional generic and transactional outsourcing continues to commoditize. Cloud and client maturity are major drivers for this, especially in IT. Buyers are seeking more platform solutions tailored to specific industry, geographic, and regulatory needs. There is a growing bifurcation between leaders and laggards in the service provider market based on industry and business process experience and diversity of services mix, including cloud and analytics. Current market trends Shared services remain foundational to GBS efforts and a delivery model option whose popularity has rebounded and grown over the past few years. Shared services resurgence is in part a recognition that certain more strategic services are better owned and performed in a shared services environment but also a result of organizations learning in the field the limitations of outsourcing in certain scenarios. Outsourcing remains a growing and often a preferred model for labor intensive and transactional services, but shared services and outsourcing are a both rather than either or discussion. Relative demand for domestic shared services centers has increased over the past year, though buyers maintain an increasingly global shared services footprint. Polling leading third party business and IT service providers found that demand for third-party business and IT services, including outsourcing, remained solid though largely unchanged in the quarter. While good pipeline growth was cited, it remains to be seen how quickly this growth will result in signed deals though commentary from providers indicates that the pace of deal flow through the pipeline is quickening compared to a year ago. Download KPMG s Global Business Pulse Survey at: 4

6 The Summary Key Messages In 3Q13 (July September 2013), 327 ITO contracts worth USD 47.5 billion and 86 BPO contracts worth USD 4.7 billion were signed worldwide Globally 9 IT-BPO bundled deals were signed in 3Q13 with contract value worth USD 1.2 billion In terms of value, approximately 67 percent of deals by value originated from the United States, followed by United Kingdom at 13 percent. Italy, Australia and Ethiopia were the other key outsourcers After a slight decrease in the average deal tenure in 2Q13 as compared to 1Q13, the tenure had a marginal increase from 4 years and 7 months in 2Q13 to 4 years 9 months in 3Q13 Government and defense sectors continue to be the top consumer of IT-BPO services contributing to 78 percent of all outsourcing deals in terms of value IT Bundled services and BPO Bundled services contributed USD 21.1 billion and USD 1.6 billion respectively and were the largest procured services globally within ITO and BPO outsourced services respectively Average annualized contract value in 3Q13 was USD 27.7 million as compared to USD 18.0 million during 3Q12 showing an increase of around 54 percent 5

7 Global Quarterly Deal Movements Snapshot Deal Value 3Q13 51% 3Q Quarterly movements of global IT-BPO deals* Year 2010 Year 2012 Total Deal Value Total Deal Value USD 207 billion -41% USD billion Year % 506 Total Deal Value USD 121 billion 430 3Q Q No. of deals -1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Value (USD billion) * 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. No. of deals 3Q13 saw an over 50 percent increase in total value of deals as compared to 3Q12 while the number of deals were almost the same The average deal value has increased by 53 percent as compared to 3Q12, an increase driven by a relatively greater number of deals of size USD 100 million to USD 500 million 6

8 Annualized Contract Value Q-o-Q Comparison Annualized* contract value comparison per quarter 3Q13 3Q12 3Q11 7,719 7,440 4% increase 11,703 3,500 5,500 7,500 9,500 11,500 13,500 Total Annualized Contract Value (USD million) 52% increase * 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 3Q13 3Q12 3Q Minimum annualized contract value 54% increase 4 years 9 months 4 years 4 months Note: All values in USD million unless otherwise specified Average annualized contract value (USD million) Average tenure per contract 5 years Maximum annualized contract value Total annualized contract value has increased by more than 50 percent as compared to 3Q12, indicating a steady growth in market activity There has been a 54 percent increase in average annualized contract value as against 3Q12, while the average deal tenure has increased by 5 months 7

9 Sector Analysis Q-o-Q Comparison Trends in deal movement (3Q12 to 3Q13) Sector Total Contract Value Total Number of Contracts Average Contract Value 3Q12->4Q12 4Q12->1Q13 1Q13->2Q13 2Q13->3Q13 3Q12->4Q12 4Q12->1Q13 1Q13->2Q13 2Q13->3Q13 3Q12->4Q12 4Q12->1Q13 1Q13->2Q13 2Q13->3Q13 Automotive & Aerospace 299% -77% -30% 5% -57% 67% 831% -86% -30% 5% Banking and Financial Services -21% 48% -51% 353% 21% -4% -9% 90% -35% 54% -47% 139% Defense 414% -87% 849% -24% 130% -66% 174% -39% 123% -61% 246% 23% Energy & Utilities -85% 737% -55% -53% -31% 64% -22% 29% -79% 412% -42% -63% Government 57% -74% -36% 400% -24% -22% -28% 104% 106% -66% -11% 145% Insurance -88% 80% -40% -92% -30% 29% -89% -82% 40% -40% -26% Manufacturing -48% -97% 3449% -44% 26% -92% 900% -35% -59% -62% 255% -14% Pharma & Healthcare 214% 68% -81% 135% 400% -80% -25% 200% -37% 738% -75% -22% Publishing, Media & Entertainment -98% 192% 468% -66% -86% 1100% -50% -87% 192% -53% -32% Retail -81% 190% -30% 161% -45% 50% 33% -64% 190% -53% 95% Telecom -9% -6% 26% -9% 5% -25% -13% -12% -13% 25% 46% 2% Travel & Logistics 82% 61% 96% -74% 60% -19% 46% -37% 14% 98% 34% -58% Others* -6% -55% 402% -58% 14% -36% 24% -15% 31% -29% 305% -50% *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% Government, Banking & Financial Services, Pharma & Healthcare and Retail are the sectors which have exhibited > 25 percent growth in terms of value over 2Q13 while all the other sectors, apart from Automotive & Aerospace, have shown a decrease In 3Q13, Government and Banking and Financial Services have exhibited the maximum growth over 2Q13 in terms of all three parameters - total contract value, total number of contracts and average contract value 8

10 Deal Analysis Q-o-Q Comparison Trends in deal movement (3Q12 to 3Q13) Deal Type Total Contract Value Total Number of Contracts Average Contract Value 3Q12->4Q12 4Q12->1Q13 1Q13->2Q13 2Q13->3Q13 3Q12->4Q12 4Q12->1Q13 1Q13->2Q13 2Q13->3Q13 3Q12->4Q12 4Q12->1Q13 1Q13->2Q13 2Q13->3Q13 ITO 83% -77% 219% 40% 19% -51% 56% 10% 54% -53% 104% 28% BPO -2% -26% 37% -12% -14% -14% 4% 51% 14% -14% 32% -42% Bundled -9% 39% -18% -75% 129% -16% 33% -88% -1% 2% -38% 97% Less than USD 100 MN 11% -33% 55% -19% 13% -34% 30% -9% -1% 2% 19% -11% Betw een USD MN 131% -82% 182% 68% 60% -69% 118% 30% 44% -41% 29% 29% More than USD 500 MN 6% -41% 118% -2% -8% -18% 67% 7% 16% -27% 31% -8% Less than 1-year 51% -37% -27% 171% 59% -60% 93% 226% -5% 58% -62% -17% Betw een 1 to 5-years 76% -80% 152% -79% 27% -54% 55% -46% 38% -57% 63% -62% More than 5-years 15% -1% 93% 121% -30% 87% 4% 91% 63% -47% 86% 16% * 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 Decrease >25% Decrease <25% No change Increase <25% Increase >25% ITO deals have grown steadily over the last 3 quarters in terms of total contract value but there has been a sharp decline in the value of bundled deals at over 25 percent in 3Q13 3Q13 witnessed a growth of more than 25 percent in deal value of deals between USD MN while deals less than USD 100 MN and deals more than USD 500 MN have decreased While deals more than 5-years contribute to more than 90 percent of deals by value terms, deals less than 1-year are steadily growing over past 3 quarters 9

11 Geography Analysis IT-BPO deals across geographies: Q-o-Q Comparison Geography-wise break-up of deals* 597 EMA AMERICAS Q Q Q ASPAC Q Q Q Total Contract Value (USD billion) No. of Contracts * Deals originating from the geography 3Q Q Q13 AMERICAS continues to be the major outsourcing region and the value of deals has nearly doubled in the AMERICAS as compared to 3Q12 with only a 15 percent increase in deal numbers EMA has also shown a growth of 16 percent in deal value as compared to 3Q12. However, ASPAC has shown a decrease of 44 percent during the same period AMERICAS has the highest average total deal value in 3Q13 after an increase of 68 percent over 3Q12. The average deal value has fallen by 24 percent in ASPAC over the same period 10

12 Sector Analysis IT-BPO deals across sectors by value and numbers TCV : USD 53.3 billion No. of contracts: 422 Deal Value (USD billion) 38 Sector-wise break-up of deals (4Q12 to 3Q13) Banking & Insurance Automotive Travel & Manufacturing Energy & Pharma & Publishing, Financial & Logistics Utilities Healthcare Media & Services Aerospace 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 4Q12 1Q13 2Q13 No. of contracts The Defense and Government sectors continue to lead deal activity, both in number and value terms, contributing to 80 percent of the total deal value in 3Q13 Both the Banking & Financial Services and Government sectors witnessed a multi-fold increase in value of the deals as compared to 2Q Q13 11

13 Sector Analysis (excluding Government and Defense) IT-BPO deals across sectors** by value and numbers TCV : USD 11.8 billion No. of contracts: 159 Sector-wise break-up of deals (4Q12 to 3Q13) Deal Value (USD billion) Banking & Insurance Automotive Travel & Manufacturing Energy & Pharma & Publishing, Retail Telecom Others * Financial & Logistics Utilities Healthcare Media & Services Aerospace Entertainment *Others: Construction, Consumer & Recreational Services, Education, Professional services, Securities and investment services, Social services, Trade unions, Technology, Wholesale ** This does not include government and defense sectors 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 Q12 1Q13 2Q13 No. of contracts Q13 Excluding Government and Defense, Banking & Financial Services and Telecom made up 70 percent of the deal value contributing more than USD 8 BN in 3Q13 Telecom and Banking & Financial Services have the highest average deal size (USD 167 MN and USD 110 MN respectively) with Manufacturing and Pharma & Healthcare at a distant third (~USD 60 MN) 12

14 Section 2 3Q13 Deal Analysis

15 Deal Value Global sourcing snapshot July to Sept 2013 IT-BPO deals* signed in 3Q13 (Total Contract Value = USD 53.3 billion) Total contract value USD 53.3 billion 100% 90% 80% 70% 60% 50% 40% 30% 20% Bundled 1.2 BPO 4.7 ITO 47.5 ASPAC 2.2 EMA 14.3 Americas 36.8 More than USD 500 MN 15.9 Between USD MN 28.9 More than 5-years Others 1.7 Time and Material # Hybrid 24.0 Fixed Price % Between 1 to 5-years Less than USD 100 MN Less than 1-year 0% 0.7 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 Longer tenure deals (deals more than 5-years) contributed to more than 90 percent of the deal value unlike the previous quarter where there were almost equal value of deals between 1 to 5-years and deals more than 5-years Though there has been a 42 percent growth in deal value of Hybrid deals over 2Q13, Fixed Price deals continue to form a majority of the deals While ITO deals continue to dominate the outsourcing space and have exhibited a 40 percent growth over 2Q13, both BPO deals and bundled deals have exhibited a decline in terms of value in 3Q13 14

16 Number of Deals Global sourcing snapshot July to Sept 2013 IT-BPO deals* signed in 3Q13 (Total Number of Contracts = 422) 100% 90% 80% 70% Bundled 9 BPO 86 ASPAC 32 EMA 137 More than USD 500 MN 16 Between USD MN 108 More than 5-years Others 2 Time and Material Hybrid 114 # Total contracts % 50% 40% 30% ITO 327 Americas 253 Less than USD 100 MN 298 Between 1 to 5-years 168 Fixed Price % 10% Less than 1-year 88 0% 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 Contracts under USD 100 million in size have been consistently decreasing over the previous three quarters and contribute to around 71 percent of contracts signed in 3Q13 which is down from 77 percent in 2Q13 Longer tenure deals (deals more than 5 years) and shorter deals (deals less than a year) have exhibited multi-fold increase as compared to 2Q13 while deals between 1 to 5-years have decreased during the same period 15

17 Services Segmentation ITO Services Analysis of ITO deals 3Q13 Total Value of contracts (USD Billion) IT Products 2.1% ERP 2.8% IT Infrastructure 7.3% ADM 6.7% SI 18.0% Other IT Services 3.4% Number of Deals Note: Size of bubble indicates percentage share of the total number of ITO deals ICT Services 21.7% SI System Integration, Other IT services Software testing, IT helpdesk support services, Cyber security IT Bundled services 37.6% 2 IT Consulting 0.3% Value of contracts (USD Billion) 47.5 ADM ERP ICT IT IT IT IT SI Other IT Total Bundled Consult. Infra. Products Services ITO 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 IT Bundled services, ICT Services and IT Infrastructure together contribute to more than 85 percent of all ITO deals in terms of value during 3Q13 In terms of number of deals, there has been only a 10 percent growth over the 2Q13 with major growth happening in ICT services and System integration services at 73 percent and 111 percent respectively 16

18 Services Segmentation BPO Services Total Value of contracts (USD Million) 1,800 1,600 1,400 1,200 1, HRO 5.8% BPO Bundled services 4.7% Content Management 5.8% F&A 5.8% Transactional Services 9.3% KPO 14.0% CRM 16.3% 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 Analysis of BPO deals 3Q13 Other BPO Services 38.4% BPO Bundled Services 529 Content Mgmt CRM F&A HRO KPO Other Transactional BPO Services Services Value of contracts (USD Million) 4,660 Total BPO 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 3Q13 witnessed the smallest deal sizes in BPO services over the last 8 quarters. This is indicated by an increase in BPO deal numbers by more than 50 percent but a decrease in value by 12 percent over 2Q13 BPO Bundled Services and Content Management are the BPO services which have exhibited multi-fold growth in terms of value as well as average deal size over 2Q13 17

19 Section 3 IT-BPO Outsourcing Outlook

20 Outlook Global Outsourcing Industry Shared services remain foundational to global business services (GBS ) efforts and a delivery model option whose popularity has rebounded and grown over the past few years. Shared services resurgence is in part a recognition that certain more strategic services are better owned and performed in a shared services environment but also a result of organizations learning in the field the limitations of outsourcing in certain scenarios. With a sharp upturn in 2Q13 with a 116 percent increase over 1Q13, 3Q13 continues the upward trend but only by a meager 20 percent over 2Q13 this trend is expected to continue in the last quarter as well Government and defense sectors continue to be largest outsourcers contributing to almost 80 percent of the outsourcing deals. This trend in Government sector is expected to continue as compared to other industries The hybrid* and fixed pricing model are a strong favorite contributing to more than 95 percent of the deal value. But we have seen over the quarters that the distribution between the two models have been equivalent AMERICAS continue to be the largest outsourcer (~ 70 percent by deal value) while there has been a decrease in deal activity (in deal numbers terms) in the same region. While all three regions are showing increased deal activity by value as well as average contract value * Hybrid pricing includes a combination of various pricing mechanisms 19

21 KPMG Shared Services and Outsourcing Advisory (SSOA) Research Latest from the KPMG Shared Services and Outsourcing Institute Adverse Event Case Management in a Global Services Delivery Model Change Management: Getting From Strategic Sourcing Vision to Reality KPMG 2013 Global Real Estate and Facilities Management Outsourcing Pulse Survey Results To learn more log on to Advice Worth Keeping Blog: Advice Worth Keeping podcast series: 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. 20

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

23 KPMG Shared Services and Outsourcing Advisory (SSOA) Analyst Team Contact; Shailesh Narwaiye KPMG in India Analysts: Harish Baliga Swati Kumari Esther Jaydevi 2013 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 ).