Financial Services and Government Sectors to Dominate Outsourcing Renewals in Asia/Pacific (excluding Japan) from 2009-2010, says IDC

Singapore & Hong Kong, July 16, 2008 – IDC’s Asia/Pacific Contracts Database shows that the financial services and government sectors will be the two key verticals to see major outsourcing contracts renewals over the next 12 to 24 months in Asia/Pacific. These two verticals accounted for more than 50% of the total contract value (TCV) of publicly announced deals in 2007, and will continue to be important IT services end-users in the future. Examples include the upcoming renewal of IBM's IS outsourcing contract with Westpac Banking Corporation Australia, which will expire at the end of 2010, as well as EDS’s IS outsourcing contract with Australia Taxation Office which will also expire in 2010.

The IDC Asia/Pacific Contracts Database also provides the contract analysis by country in this region, which reveals that Australia will top the list in terms of TCV renewal over the next two years. In addition, IDC believes that offshore outsourcing will be high on the agenda for renewals from Australian organizations as they look to bring down the cost of outsourcing contracts.

In addition, one of the key trends to emerge from IDC's outsourcing contracts analysis is the shift from 'single-vendor' outsourcing to multi-sourcing deals. This trend is mainly seen in the renewal of existing long-term contracts particularly in Australia, as these deals are 'carved up' by organizations looking to diversify the work across multiple IT services providers in order to drive down price. However, it is also filtering into 'new' contracts too, the most recent example being the SOEasy project in Singapore. In this deal, the Singapore government took a multi-sourcing approach to a 'new' mega project, which requires several vendors to be involved in different aspects of the outsourced standard operating environment that is being set up for approximately 60,000 workstations and laptop computers at 74 public agencies across Singapore.

According to Emily Tee, Senior Market Analyst of IDC's Asia/Pacific IT Services Research, "Moving forward, IDC expects this multi-sourcing trend to create more complex contract structures in the outsourcing market, resulting in reduced length and value of deals as well as increased number of contracts per client. This will create more opportunities for the 'services aggregator'. We have already seen a number of vendors putting up their hands for this role in order to drive more strategic relationships with clients."

The competition in the outsourcing space in Asia/Pacific has intensified since the past few years. IDC observes that the number of market participants in the outsourcing space has approximately doubled over the last five years. Vendors that have created more competitive pressure in the outsourcing space include telecom providers like BT and AT&T, as well as pure-play hosting providers like Savvis and Rackspace.

The Indian-based players are also playing an increasingly important role in the Asia/Pacific outsourcing market as the contract values won by these vendors have grown in 2007 as compared with 2006. Examples of the outsourcing contracts being awarded to the Indian players include a recent application management (AM) contract awarded by one of the Singapore government agencies to Satyam, and the CBA Australia’s AM deal won by HCL Technologies in 2007.

IDC expects the mid-range deals to dominate the market over the next two years, with at least 30 outsourcing contracts each having a renewal value in the range of US$50 million-US$300 million in Asia/Pacific excluding Japan, thereby providing further opportunities for the 'newer' players to increase their market shares.

Vendors need to understand the different nature of the vertical industries when it comes to capturing new renewal opportunities to increase their wallet share from end-user companies. For the government sector, this industry demands a different business model due to its unique requirements. The financial services industry, on the other hand, has always been the benchmark for innovation in outsourcing and are thus early adopters of new solutions.

Therefore, when contracts come up for renewal, it is the perfect opportunity to up-sell the latest solutions. In addition, financial institutions tend to have multi sites in multi countries, as such, datacenter, branch office and UC solutions will also resonate well.