Earlier this month, TPI Momentum published the second annual Market Trends & Insights Vertical Industries Report, a comprehensive look at outsourcing activity in 27 major sectors of the economy. Designed with service providers and market watchers in mind, this report combines data on outsourcing activity among the Forbes® Global 2000 (G2000) largest public companies with commentary from TPI’s expert advisors on the specific factors that are influencing decision-making in each industry. Over the next few weeks, I will be sharing more highlights from this report with you, including data and analysis from key verticals such as Financial Services and Health Care as well as trends that are affecting the shape of the overall sourcing market.
Collectively, G2000 companies spent $71 billion in annualized contract value (ACV) on outsourcing in 2009, a 3 percent increase over 2008.Those companies that outsourced spent an average of $104 million in ACV each year. However, in Telecommunications Services, ACV averaged more than $300 million, while in Construction, it was less than $25 million. In certain industries, such as Telecommunications Services and Aerospace and Defense, outsourcing is a common business practice with 60 percent of G2000 companies using it, while penetration in verticals such as Construction and Trading Companies is much lower. TPI is currently tracking an active outsourcing contract in 34 percent of G2000 companies, up 2 percent over 2009.
There are many factors that influence outsourcing decisions within particular verticals. Four common drivers are cost-cutting initiatives, government involvement, technology trends such as Cloud Computing and virtualization, and changing dynamics in emerging markets. For many vertical industry segments, the strongest opportunities for business growth are found in emerging markets. For example, as companies in emerging markets grow, demand for computers, software and operating systems is increasing, creating opportunities for companies in the Software & Services and Technology Hardware & Equipment verticals. Increasing consumer demand for mobile devices in emerging markets is driving the need for Telecommunications Services. Increased demand in the emerging markets not only fuels demand for services, but also can cause companies to bring their supply chains closer to the market demand.
Favorable service provider solutions in the recent past focused on three areas: matching client location strategies, adding value through deep vertical expertise and offering innovative go-to-market solutions. Client companies are now moving their operations closer to the emerging markets for their own products and services. They are co-locating sourcing service delivery and service management functions alongside business units. Suppliers that recognize this trend and can adapt have a potential advantage. In particular, ADM pursuit teams that can demonstrate vertical expertise in the business processes of engineering and operations, and can clearly articulate how this knowledge creates synergies to help drive further cost and performance improvements, will have a more compelling solution.
We created this report because we know that service providers have to understand the nuances of the outsourcing market at a vertical level to be successful. If you’d like to learn more about the TPI Momentum Market Trends & Insights Vertical Industries Report or find out how to purchase individual chapters or the entire report, contact me.About the author
Paul Reynolds leads Momentum, a division of ISG that provides research services to help service providers better target, win and retain business. Paul has 25 years of market research experience with specific expertise in methodology development, data analytics and research process design. Having found many service providers’ Advisor Relations functions to lack appropriate analytics, Paul is working to develop innovative new approaches that allow for data-driven programs based on the unique needs of each client. His approach benefits Advisor Relations, go-to-market functions, sales, strategy, marketing, and market/competitive intelligence teams.