Good news for EMEA outsourcing as activity hits record high
There are good tidings for the outsourcing industry, as the Q2 2014 EMEA ISG Outsourcing Index reveals that commercial outsourcing within the EMEA region boomed in the first half of 2014.
Not only are we seeing a 25% leap in the number of contracts signed compared to the same period in 2013, but the annual contract value (ACV) grew by 32% year-on-year and was the highest first-half contract value in six years. At the half-year point, New Scope ACV is up by 50% on the same period last year. So why is EMEA, the dominant region in the global outsourcing market since it overtook the Americas in 2008, experiencing such growth?
The 2014 EMEA ISG Outsourcing Index measures commercial outsourcing contracts with an annual contract value of at least €4million. Its findings indicate that a plethora of small deals, as opposed to a few large ones, drove the market this quarter, with increases in both Restructurings and New Scope awards. Yet an increase in the award of mega-relationships also contributed to the growth in this year’s first half.
The Index findings reveal that there has been an increased demand from continental Europe, which has boosted contracting activity for the region. Germany saw year-on-year ACV growth of 40% compared to its lacklustre performance in the first half of 2013. The Nordics, though modestly down year-on-year, registered one of its strongest ever first halves for ACV and contract awards. France stood out in particular, with its best half-year performance to date in both contract volume and value. As the French market is still small and remains under-penetrated, it has scope to grow much further.
We can see that the UK outsourcing market, despite being ultracompetitive and highly penetrated, has retained its steady performance, with ACV increasing by 6% compared with the first half of last year. Despite economic lethargy, southern European countries also did well.
These outcomes feed into the strong performance at a global level, where the second quarter has surpassed the strong Q1 due to robust activity – not just a couple of large deals. Beyond EMEA, the Americas outsourcing market reached a five-quarter high and Asia-Pacific, with a billion dollars in ACV, equalled its highest first half in a decade.
A large part of EMEA’s success is down to IT outsourcing (ITO) activity. With ITO award values reaching €2 billion and counts of 111, this was the sector’s strongest-ever second quarter despite a modest quarterly drop. Year-on-year both Restructuring and New Scope saw an uptick in ITO ACV, the result of some large deals and an increase in the number of deals overall. In contrast, BPO activity on the region continued its lacklustre performance, down around 20% for the period by value and number of awards.
The strong performance of this half, which spans almost all industry sectors, reflects a healthier overall market. The four largest verticals – Financial Services, Manufacturing, Travel Transport & Leisure, and Telecom & Media – all performed well, leaving only Energy and Healthcare to do better. This bodes well for the rest of 2014 and we expect the total value of contracts awarded in EMEA to exceed 2013 results quite comfortably.
About the Author
David Howie is a partner at ISG, specialising in financial services. Part of the UK Leadership team, he has international delivery experience across the value chain, from development of sourcing strategies, assessments, and operating models though contract negotiations, to service transition and management. Previous experience includes operations in banking, strategy consulting, and founding and running high-tech start-up companies. A Fulbright Scholar, he held a number of positions in academia, and earned two doctoral degrees.