Large contracts and France drive growth in EMEA outsourcing market
A strong 2014 helped the Europe, Middle East, and Africa (EMEA) outsourcing market retain its position as the largest outsourcing region globally, with growth of 7%. The Annual Contract Value (ACV) of new scope and restructured contracts each delivered small gains, aided by the award of 20 mega-relationships across the region.
The Q4 2014 EMEA ISG Outsourcing Index, which measures commercial outsourcing contracts with an ACV of €4 million or more, found that a robust final quarter contributed to the region’s best year since 2011 and tied for the second strongest year of the last decade. ACV reached €9.5 billion for the year, up from €8.9 billion in 2013, although contract counts remained static (588 in 2014 vs. 595 in 2013).
Among the sub-regions, the UK saw positive growth in ACV compared to 2013, but EMEA’s growth was largely underpinned by activity in the region’s fourth largest market, France, where year-on-year growth reached 125 per cent. In addition, the number of mega relationships awarded across EMEA – contracts with an annual contract value of €80 million or more – grew by 25 percent. It is certainly encouraging to see more sustained outsourcing activity across the region rather than simply in the more mature markets.
Market growth was seen in every region in 2014, resulting in global ACV of €18.5 billion for the year, up 16 per cent, while contract counts edged up 4 per cent, to 1,218, the second-highest level ever.
ITO values rose 13 per cent in 2014 and the 452 ITO contracts signed in EMEA for the year was the highest ever recorded in the region. Infrastructure deals drove the market, fuelled by some particularly large deals, including IBM’s deals with ABN Amro and Lufthansa.
In contrast, BPO ACV continued to shrink, falling for the second year, this time by 12 per cent. The number of awards dropped by more than 25 per cent, and in both value and number of deals, BPO hit its lowest point since 2010.
Several industries in EMEA posted strong results, chief among them Manufacturing, Energy and Transportation. ACV for both Manufacturing and Energy rose by nearly 30% over last year, and their counts edged up a bit as well. Transportation, with a 13% increase in ACV, and Energy both finished above their prior three-year averages.
EMEA’s largest sector, Financial Services, fell by 20 percent in ACV in 2014 – its lowest performance in the past five years, due in part to a drop in contract activity and renewed pressure on prices in the market.
At a regional level, the United Kingdom saw double digit (11 per cent) growth as ACV grew from €3 billion to €3.4 billion, despite an 11 per cent fall in contract counts. The award of larger contracts and no less than nine mega-relationship drove the market growth.
Looking ahead, we expect healthy numbers in 2015, though growth during the first half of the year will look flat at best. The first two quarters of 2014 were particularly strong and so the first half of 2015 may look tepid by comparison.
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