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Megadeals aid outsourcing recovery

Growth among Indian companies, contracts for financial and other business services helped sector bounce back, report says.

The global outsourcing market bounced back after a shaky start last year thanks to a spate of megadeals and continued double-digit growth among Indian companies, according to a recent report.

Despite a drop of 12 percent in the number of providers winning contracts and the total contract value (TCV) falling to a five-year low, the TPI Index report, produced by consulting firm TPI, is optimistic about prospects for this year.

The index analyzes outsourcing contracts worldwide that have a value of more than $25 million.

A resurgence during the fourth quarter saw a TCV of $27 billion, the highest since the first quarter of 2006, and the biggest actualized contract value--the amount of the deal actually drawn down by the provider--during a quarter in 11 years.

TPI estimates there were 2,700 active contracts, yielding approximately $79 billion in annualized revenue at the end of 2007.

"The record of outsourcing growth exceeded 7 percent. We anticipate we could have 7 to 8 percent through 2008," said Duncan Aitchison, partner and managing director for Europe at TPI.

The year saw the Americas fall behind Europe, the Middle East, and Africa in the number and value of outsourcing contracts for the first time.

India saw strong growth in companies both buying and providing outsourcing, with India's own service providers experiencing 40 percent growth year-over-year and Indian companies topping the list of buyers outsourcing in the Pacific.

Companies in China signed several large outsourcing contracts as well in 2007.

Fueling the end-of-year recovery was a sharp rise in megadeals--contracts worth several hundred million dollars.

Business process outsourcing (BPO) experienced a resurgence after a lackluster performance in earlier quarters.

The fourth quarter saw the highest TCV for BPO contracts since the fourth quarter of 2005 and the highest actualized contract value since the second quarter of 2004.

Within the BPO sector, financial services outsourcing and multiprocess BPO markets were strong.

Human resources outsourcing demand fell by 34 percent and more than $2 billion in TCV in 2007 compared to 2006.

Nick Heath of reported from London.