Market Demand and Market Trends Update

Change in demand growth for both BPO and ITO remained positive but fell back for the second straight quarter, according to EquaTerra advisors polled in the 2Q08 Pulse survey (see Figure 1).

Thirty-eight percent of advisors indicated demand levels were up for the quarter, down 14 percent from 1Q08 but up eight percent over 2Q07. This level is also below the average "up rating of 56 percent over the life of the survey.

" Thirteen percent of advisors indicated demand levels had declined in the quarter, the highest level recorded in the life of the Pulse survey

" Advisors who support global outsourcing efforts and those in the Americas were more likely to cite up demand than those supporting work in EMEA (Europe, Middle East, Africa)

" Advisors who primarily support HRO were less likely to cite growing demand, and more likely to cite declining demand.

EquaTerra still expects overall demand and growth levels for BPO and ITO in 2008 will exceed those in 2006 and 2007. Current uncertainty in the economies of many
Western nations and markets, particularly the United States, will slow and in some cases disrupt deal flow in the short term; longer term, the economic uncertainties will drive more outsourcing demand. The impact of the economy on outsourcing demand and the drivers for outsourcing are discussed in more detail below.

BPO and ITO service providers polled were more positive on new deal pipeline growth projections (see Figure 2) than advisors were on demand growth.

" Service providers characterizing their pipelines as up rose 10 percent this quarter, to 52 percent. This level was up 14 percent year over year and just below the survey average of 56 percent.

EquaTerra finds service providers continue to indicate they are more positive on pipeline growth than they were one year ago, except for multi-process HRO deals.

" Less than 10 percent of services providers cited a decline in pipeline growth.




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