The BPO market has been impacted by the credit crunch with a decline in contract signings as organizations rethink their business and sourcing strategies, according to a new report from NelsonHall.

The "BPO Index" market monitor for June 2008 released today found that while the value of global BPO contract signings in the commercial and civil government sectors increased by 29% in H2 2007, BPO technology crossover ventures (TCV) increased by just two per cent in H1 2008.

The report also found a downturn pattern in BPO contract activity taking place in Q2 2008 and a quarter-on-quarter decrease in global BPO TCV between Q1 2008 and Q2 2008 of approximately 8%. The effect of this has been to make Q2 2008 the lowest for global BPO TCV since 2003.

In a statement issued by the firm, it said: “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 the market is in 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.

On a positive note the report found that the pattern of back-office outsourcing has changed with F&A outsourcing coming into its own and growing strongly in both North America and Europe. This has been driven by the increasing need of F&A support in emerging geographies such as Latin America. At the same time, single service activity in HR outsourcing remained strong.