As has been noted in previous NelsonHall BPO Indexes, the underlying BPO contract growth continues to be driven by a strong and steady European market while North America has experienced a slight decline of 7% on a year-by-year basis, if the Raytheon contract is excluded. The pattern of BPO activity continues to differ between the two regions with European organizations placing a greater emphasis on outsourcing industry-specific functions, while support function outsourcing remains a strong emphasis in the U.S.
In Asia-Pacific demand has traditionally, and continues to be, dominated by the high-cost economies such as Japan and Australia. Nonetheless there is increased BPO activity in support of infrastructure build in emerging economies. For example, the Index identified domestic card processing and ATM management awards in China in the last quarter with acquisitions made by companies looking to enter promising areas such as recruiting services in China. During 2005 and 2006, the industry witnessed a steady decline in the average value of BPO contracts, particularly within the top 20 and top 50 contracts. Excluding the Raytheon contract, there has been a modest turnaround in average value for the leading BPO contracts, with the average value of a Top 50 BPO contract increasing by 6% and the average value of a
Top 20 BPO contract increasing by 8%.
The previous decline appeared to be the consequence of a decline in activity in industry-specific outsourcing contracts. However, with the re- emergence of major industry-specific opportunities in the government and financial services sectors joined by a persistent stream of large multi- process HR outsourcing contracts, the average BPO contract value has stabilized. Over the past 12 months, BPO activity has strengthened in both government and financial services, with these sectors now accounting for more than three- quarters of BPO contract value globally. Furthermore, the public sector remains on the brink of supplementing its existing high levels of contract activity in state and local government, both with new kinds of emphasis, such as road charging services at the state and local level, and also increased outsourcing in central government. The industry is currently seeing significant document BPO contracts emerging from central and federal government, but these will increasingly be supplemented by activity arising from both industry-specific silos and the outsourcing of shared services initiatives.
Utilities and transportation have also shown short-term contract growth. The North American utilities sector has continued to generate multi-process outsourcing contracts while the transportation sector has added several multi- process HR outsourcing contracts to its traditional mix of revenue accounting, card processing, and customer management services.
The manufacturing and retail sectors remain a healthy source of contracts for HR outsourcing, F&A outsourcing, and procurement outsourcing. HR outsourcing continues to show contract growth with single-process talent management support strengthening alongside multi-process HR outsourcing. There also is considerable M&A activity taking place in the recruiting services space.
