The outsourcing market in Asia Pacific grew substantially in 2007, fuelled primarily by increased demand from corporations based in India, according to a survey by TPI, a leading sourcing advisory.

Companies in India, as buyers, led outsourcing growth in Asia. India led by almost doubling the value of its outsourcing work year on year, Siddharth Pai, Partner and MD, TPI, India, said during the launch of its survey results.

"Fuelled by booming economy, Indian industry in particular found outsourcing to be a viable tool to improve performance and drive growth in market share", he said. Alongside, increased domestic demand for outsourcing, the India-heritage service providers' share of global contracts continued to expand in 2007, up from six per cent share in 2006 to nine per cent in 2007.

Outsourcing in Asia Pacific saw its second consecutive year of strong growth and showed an increase in demand across all measures. Although the number of contracts signed in 2007 grew by just over four per cent, their total contract value increased 30 per cent year over year from $ 9.9 billion to $ 12.8 billion and annualised revenues showed a 13 per cent increase, nearly double that of global average.

Asia Pacific was the only geography to show an increase across all these measures. The average value of outsourcing contracts in Asia Pacific region increased by 25 per cent from $ 141 million to $ 76 million; largely due to increased mega relationship activity in the region, especially in last quarter of 2007. The region showed particular strength in mega deals with nine signed in 2007 at a total value of USD 1.5 billion.

In addition, BPO performance in the Asia Pacific region was particularly strong in 2007. BPO total contract value in the region soared by 101 per cent, yielding the best year ever for BPO contract values in the region. Outsourcing growth in the region was largely driven by corporations in India and China. Countries traditionally known for their provision of outsourced resources are becoming buyers of outsourcing.

India has stepped up outsourcing activity in telecommunications and financial services, while China's growth mainly came from single telecom mega deal. Other findings of the latest TPI index include that at the end of 2007, about 2,700 active contracts delivered $ 80 billion globally in revenue to providers, accounting for a growth rate in annualised revenue of more than seven per cent.

However, from a regional perspective annualised revenues in Asia Pacific and EMEA revealed five year Compound Annual Growth Rate of 10.8 per cent and 15.8 per cent respectively, while the US' CAGR for same period shows a decline of 1.9 per cent. On BPO front globally, 171 BPO contracts worth more than $ 23 billion were awarded globally.

2007 saw a shift in relative share of BPO contracts from the US to Europe, the Middle East and Africa and Asia Pacific by both numbers and contracts and their TCVs. On broader market trends, the survey said there was softness in broader market commercial contracts awards through the end of 2007. Although there were few contracts of less total value in 2007, than 2006, it was about the same number and $ 8 billion less than the five-year average.

On a global level the fourth quarter of calendar year 2007, was the best quarter on an annualised contract value basis in eleven years. On the basis of annualised contract value more than USD 15 billion of ACV awarded in 2007 matched the five year average. New scope ACV was up globally year-over-year by a healthy 13 per cent. Speaking on trends, he said the average BPO contract duration was now longer than average ITO contract duration.

The average contract value was up while the average contract duration remained relatively flat. 33 per cent of new scope TCV and ACV was awarded during the fourth quarter of 2007.

Speaking on the issue of IT spend following US recession, Pai, said that though the discretionary spend which comprises new products, would be impacted, the non discretionary spend, like maintenance cost and those that a company could not skip out would not be impacted.

On the issue of the weakening of dollar impacting the industry, he said though short term the impact was bound to be felt on the long term, it would not be as strong since with the dollar expecting to settle and the rate of recession in the US slowing down. TPI's conclusion on the market trend was that 2007-2008 ended with strong momentum.

"We project globally around seven percent annualised revenue growth in 2008-2009", said Pai. "Contract values are showing renewed signs of life and we are beginning to see signs of vertically oriented BPO contracts," he said.

India heritage providers and other are making their presence known. Rationalisation of offshore delivery resource model and increase in outcome-oriented relationship service was being observed. There was also a lot of unbundling of services taking place.