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Outsourcing prices nose-dive in March quarter, business dips

Outsourcing industry is facing tremendous pricing pressure, going by the findings of Everest Group’s quarterly outsourcing and offshoring report.

According to it, the total amount of work under BPO deals that were renewed or renegotiated increased 14% in the three months from December to March, but the total value of these contracts fell by 17%. In other words, outsourcing companies were getting paid less for doing more work.

Overall, global outsourcing deals fell 5% in value during the same three months. However, compared to the new contracts announced during the same quarter last year (Jan-Mar 2010), value of announced contracts were 14% this year — indicating a recovery from the frigid conditions of 2009-10.

The decrease in overall market activity (compared to December quarter) was largely due to reduced activity in the IT outsourcing market. As a result, all geographies showed positive trends in the BPO market, whereas the IT outsourcing market activity only increased in the United Kingdom.

In sheer number of deals (not their value,) the March quarter saw the largest number of BPO transactions in the last three years.

India continues to dominate captive activity with 13 new announcements, Everest said, adding that Indian service providers (such as Genpact and Infosys) continued to operate at higher margins compared to other service providers.

However, indicating emerging competition for India, Everest has elevated Brazil to the category of “Mature Locations”, previously consisting of India, the Philippines and China, for its strengths in application development, IT-infrastructure, and R&D and engineering services.

Traditional service providers covered by Everest include Accenture, ACS Xerox, Atos Origin, Capgemini, Convergys, CSC, AON Hewitt, HP Enterprise Services, IBM, Dell Services and Unisys. Offshore-centric service provider profiles included Cognizant, EXL, Genpact, HCL, Infosys, Mahindra Satyam, Tata Consultancy Services, Wipro and WNS.

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