North America recorded its best quarter of activity in the outsourcing market since the fourth quarter of 2008, and the global sourcing market continues to give signals of a recovering global economy, according to Everest, a global consulting and research firm. Transaction volumes for the first quarter of this year, valued at US$3.9 billion in annual contract value (ACV), maintained a steady, even pace for the third consecutive quarter.

Everest’s Market Vista: Q1 2010, a quarterly report on global outsourcing and offshoring activity, reports North American transaction activity in the first quarter 2010 increased 18 percent and ACV was up 36 percent over the fourth quarter of 2009. In the global outsourcing market, ACV remained similar compared to fourth quarter 2009 but increased 31 percent when compared to first quarter 2009.

First quarter 2010 findings and comparisons to the fourth quarter of 2009 include:

- IT Outsourcing (ITO) continues to lead transaction activity with deal volume remaining steady and ACV rising 43 percent. Business Process Outsourcing (BPO) comprised 32 percent of deals signed with increases of 30 percent in transaction volume but showed a 7 percent dip in ACV.

- The BFSI (banking, financial services, insurance) and MDR (manufacturing, distribution, retail) verticals contributed towards about 37 percent of deal signings. In the MDR vertical, contract signings were up 33 percent.

- The North American BFSI vertical witnessed an increase of 54 percent in transaction volumes. As seen in the previous quarter, most deals were signed in the banking sector.

- Large deals were signed by buyers in the logistics, wholesale, travel and transportation sectors.

- In Europe, transaction activity marginally increased in terms of volume, led by 33 percent growth in transaction volumes in the United Kingdom.

- The captive market continued to grow with 35 new announcements this quarter, sustaining the two-year high mark for activity set in the fourth quarter 2009.

- A marked increase in offshore activity was seen in Brazil, China, India and the Philippines with 44 new delivery centers. Asia saw significant offshore activity during the quarter with Tier-I cities reporting higher activity compared to Tier-II cities.

- Overall supplier transaction activity volumes remained steady and improved for offshore centric-suppliers but declined for traditional global majors. M&A activity was similar to last quarter, but the market saw 52 new alliances compared to 39 in the previous quarter.

“Outsourcing market activity during the last quarter was largely led by renewals and restructuring of existing contracts,” said Eric Simonson, managing principal of Research, Everest. “With discretionary spend opening up this year, buyers are looking to take their sourcing strategies to the next level, so these renewals are critical milestones for both buyers and suppliers. While the outsourcing market’s activity numbers look good, economic recovery remains slow and steady.”