February 11, 2009

Everest Q4 Report: Outsourcing transactions by financial firms drop 33 percent, captive divestitures rise sharply

Report focus topic: Emerging global sourcing destinations

DALLAS and GURGAON, February 11, 2009 – Large financial firms signed 33 percent fewer transactions and divested heavily in captives during the fourth quarter of 2008, according to the Market Vista: Q4 2008 report on global outsourcing and offshoring activity by the Everest Research Institute. Everest analysts will hold a one-hour Webinar on February 19, 8:30 a.m. CST, to present study findings and insights.

“The decrease in outsourcing transaction activity is primarily on account of deferred spending by large financial firms; however, we expect outsourcing and offshoring activity in the financial sector to pick up during 2009,” said Eric Simonson, Managing Principal, Everest Research Institute. “The fourth quarter also saw Citigroup and Lehman Brothers shed off captives. Reducing fixed costs and increasing flexibility through third-parties are key reasons for captive divestiture by financial firms.”

The Institute’s quarterly Market Vista reports provide data and analysis of deal trends in the outsourcing and offshoring market, captive landscape, current and emerging locations, key supplier developments, and key developments across the top 20 financial services companies globally. The Market Vista Q4 report also includes a special section on emerging locations including Johannesburg, Ho Chi Minh, Istanbul, Bangkok, Guatemala City, San Salvador, Kiev and Cairo.
Other insights for the fourth quarter 2008 activity include:

• Overall outsourcing transactions decreased 6 percent compared to the previous quarter but was higher than the first and second quarters of 2008
• Total ACV increased by 11 percent from US$3.2 billion in Q3 to US$3.5 billion in Q4, primarily due to the signing of multiple large contracts. IT outsourcing contracts accounted for over US$1.9 billion; contracts with ITO and BPO accounted for about US$1 billion
• For the fourth consecutive quarter, Europe accounted for a significant portion of the outsourcing market. Despite a marginal increase in market share from 39 to 41 percent from Q3 to Q4, transaction signings decreased by 2 percent and ACV dropped 41 percent
• Captives activity was dominated by set-ups in India, China and other Southeast Asian countries: 22 new announcements occurred in Q4, compared to 22, 18 and 16 in first three quarters, respectively
• In Brazil, currency depreciation in the last few months has resulted in a 12 percent reduction in operating costs, restoring labor arbitrage opportunity to 2007 levels
• Destinations in Africa are pursuing offshoring investment, including the South African government and industry bodies that are taking initiatives to improve infrastructure, provide fiscal incentives and lower operational costs
• Reversing the trend from the previous quarter, aggregate US$ revenues across the group of suppliers declined by 2.5 percent. Revenues of traditional global suppliers declined by 3.2 percent, while those of offshore-centric suppliers increased by 3.5 percent

Quarterly Market Vista reports include key developments among 20 leading global suppliers. Traditional supplier profiles include Accenture, ACS, Atos Origin, Capgemini, Convergys, CSC, EDS, Hewitt, IBM, Perot Systems and Unisys. Offshore-centric supplier profiles include Cognizant, EXL, Genpact, HCL, Infosys, Satyam, Tata Consultancy Services, Wipro and WNS.

The 45-minute Webinar, followed by 15 minutes ofquestions and answers with participants, will take place on February 19 at 8:30 am CST; 9:30 am EST; 2:30 pm GMT Standard Time. To register, please visit: www.everestresearchinstitute.com/Events/Webinars.

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