NelsonHall BPO Index Identifies Short-Term Slowdown in BPO Contract Signings Resulting From Credit Crunch

BOSTON, MA and LONDON and COLONGE, GERMANY and PARIS--(Marketwire - July 10, 2008) -

NelsonHall, the leading BPO analyst firm, today announced the results of its "BPO Index" market monitor for the period ending June 2008. NelsonHall's BPO Index shows that the BPO market has been impacted by the credit crunch with a decline in contract signings as organizations rethink their business and sourcing strategies.

While the value of global BPO contract signings in the commercial and civil government sectors increased by 29% in H2 2007, BPO contract signings in these sectors have more recently been impacted by the credit crunch and/or economic downturn in North America and the U.K. with the result that BPO TCV increased by just two percent in H1 2008.

Indeed the short-term pattern is of a downturn in BPO contract activity taking place in Q2 2008. While the quarter-on-quarter decrease in global BPO TCV between Q1 2008 and Q2 2008 was only 8%, the effect has been to make Q2 2008 the lowest Q2 for global BPO TCV since 2003, with Q2 2008 being a below par quarter for signings in both North America and Europe.

This single quarter may not be the start of a trend but there are signs of a short-term pause in activity while organizations reappraise their longer-term plans. The broad conclusion seems to be that there is a pause before the storm with organizations reappraising both their broader business strategies and sourcing strategies in the light of the current economic reality. This will almost certainly lead to an increase in BPO contract activity in the future and mean that organizations need to be more ambitious and transformational in their sourcing strategies, though looking for a rapid return from these strategies.

So, in the longer-term, there remains an ongoing and even enhanced need to use BPO to transform mature operations and to support entry into new markets. This use of BPO to support entry into new markets is already apparent. Although emerging markets still only account for approximately 3% of global BPO TCV, BPO TCV grew 26% in these economies over the past 12 months.

By sector, the government and financial services sectors strengthened their share of BPO TCV from 60% in the 12 months ending June 2007 to 63% in the 12 months ending June 2008.

However, at this point, the story differs from the usual one. While BPO contract TCV more than doubled in the civil government sector over the past 12 months, BPO TCV declined by 30% in the financial services sector. Indeed this slowdown in contract signings wasn't limited to the financial services sector but was broadly apparent across a broad range of commercial sectors including the manufacturing and retail sectors. These declines were typically more pronounced in North America than in Europe.

The pattern of BPO service adoption has also continued to evolve with an increased emphasis on key operational processes which can have a material impact on both an organization's effectiveness and its efficiency. This is demonstrated by the considerable growth in activity in industry-specific and front-office BPO over the past 12 months. BPO TCV has grown by more than 50% in these areas, which now account for 85% of BPO TCV, with a particularly marked increase in the level of customer management services activity. Customer management services is a key part of the BPO market as organizations address the key elements of their cost base and look for mechanisms to support them in new market entry.

The pattern of back-office outsourcing has also continued to change. F&A outsourcing has been coming into its own and growing strongly in both North America and Europe as well as increasing in importance in support of market development in emerging geographies such as Latin America. In terms of trackable contract value, F&A outsourcing now accounts for 8% of global contract value.

At the same time, single service activity in HR outsourcing remains strong with for example in the last quarter both Hewitt and Serco strengthening their absence management capability.

NelsonHall's quarterly BPO Index reports are available as part of NelsonHall's BPO subscription services. For more information about accessing this report and NelsonHall's BPO subject matter experts, please contact the following NelsonHall representative:

Paul Connolly at paul.connolly@nelson-hall.com

About NelsonHall

Founded in 1998, NelsonHall is the leading global independent analyst firm in Business Process Outsourcing (BPO). The company provides buy-side and sell-side organizations with deeper research and analyses in major BPO disciplines than any other research firm in the world. These include Finance and Accounting, Human Resources, Procurement, Banking, Insurance, Government and Customer Management Services. The company's subscription-based model provides subscribers with robust market analyses, case studies, vendor assessments, contract analyses, market reports and access to a content-rich BPO contracts database. The firm covers a wide range of industries, including financial services, government and utilities sectors, and tracks worldwide and regional BPO activity. For more information on NelsonHall, please visit www.nelson-hall.com.

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