EMEA outsourcing activity on track to round out 2014 strongly
The outlook remains positive for the outsourcing industry, according to the latest figures from the EMEA ISG Outsourcing Index. Based on the data and our own insights, the market has been performing strongly through the first three quarters. In addition, the level of activity we’re seeing underway leaves us feeling optimistic for the rest of the year.
Annual contract value (ACV) across EMEA reached almost €7 billion (€6.99 billion) year to date. This is the third-highest year-to-date total in the last ten years.
This occurred in spite of a slower third quarter. Traditionally one of the quietest periods in the year, this year’s Q3 has returned to “normal” levels of activity – following a string of particularly strong third quarters in recent years.
As the largest and most mature market in EMEA, the value of outsourcing in the UK has remained largely consistent over the past five years. Both ACV and contract counts increased substantially quarter-on-quarter, up 120 percent and 48 percent, respectively. Despite this, UK values and contract numbers did not quite reach 2013’s third-quarter results.
Most interestingly, the latest figures demonstrate that outsourcing is no longer a Northern European phenomenon, as more outsourcing activity spreads across the continent than ever before. ACV in France so far this year reached more than €1billion, an astonishing increase of more than 250 per cent on the same period in 2013. Due to increased activity in Spain and Italy, Southern Europe also had a stellar performance as ACV reached €0.74 billion, its highest level ever.
The growing maturity of the DACH outsourcing market has resulted in a shift towards the award of smaller deals as companies look to leverage the benefits of cloud-based solutions and automation, along with their lower costs. Year to date, this change has contributed to a decline of 13 percent in ACV compared with 2013. The downshift back to a more subdued third quarter was also evident in the Nordic region.
ITO and BPO
ITO has had an impressive performance, supported by some remarkable figures. ACV year-to-date reached its second highest level ever, despite the slowdown in the third quarter. In terms of contract counts, 338 ITO contracts have been recorded this year, surpassing the record for contract counts previously noted in 2011.
On the BPO front, the numbers tell a markedly different story. While activity has been generally increasing since 2005, this year has already seen a decline of 35% on 2013. This is largely due to the drop in contracting activity within the Financial Services sector.
We forecasted that, following the robust first half, the third quarter would see a pause in activity for the region and that has indeed been the case. We believe this pause is temporary and expect to see both deal activity and values picking up again in the fourth quarter. The impressive performance of less mature markets, especially France and Southern Europe, is yet another reason to be optimistic about the market moving forward. We believe 2014 could end up being one of the strongest – if not the strongest – years in a decade.
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