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Outsource magazine: thought-leadership and outsourcing strategy | May 25, 2017

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Second strongest quarter in a decade for EMEA outsourcing, says ISG

Second strongest quarter in a decade for EMEA outsourcing, says ISG
ISG
  • On January 29, 2016
  • http://www.isg-one.com/

We’ve just published the latest Outsourcing Index from Information Services Group (ISG) (which measures commercial outsourcing contracts with an annual contract value (ACV) of €4 million or more), and found that the Europe, Middle East and Africa (EMEA) region posted a strong finish to the year, with annual contract value (ACV) rising 17 per cent in the fourth quarter, to $3.1 billion, fuelled by the signing of five mega-relationships.

It was only the third time ever that the region surpassed €3 billion in ACV in a quarter, and the first time since the third quarter of 2012. The EMEA results reflect the strong performance in the global market, which posted the highest quarterly ACV level in four years.

In terms of the full year, EMEA was unable to counter the effects of a sluggish first half. Regional ACV declined 8 per cent, to €9.4 billion, while the number of awards fell 7 per cent, to 601. This decline can be attributed to a sharp reduction in ITO activity and values, as the number of large infrastructure awards dropped sharply and contract values were lower across the board. In stark contrast, BPO ACV in 2015 surged 24 per cent for the year, with contract awards up 11 per cent, led by industry-specific, contact centres and facilities management work.

This strong finish to the year is really encouraging. Enterprises in the region are actively seeking ways to revamp their processes around cloud, digitalisation and robotics, resulting in a shift to smaller deals, which also allow for flexibility and cost variability. This new approach to outsourcing looks set to continue; globally, we see more enterprises are sourcing than ever before and they’re paying less for services, which encourages them to outsource even more.

Looking at individual markets, the UK, while making some gains on its third-quarter results, fell short of 2014 full-year values as ACV sank 19 per cent in 2015. Still, in keeping with the continuing trend toward a greater number of awards being signed, but of lesser value, 234 contracts for the year was a record high.

DACH had its best year ever, matching its 2011 performance, as ACV surged 69 per cent. However, the sub-region bucked the trend seen elsewhere by posting its lowest contract count since 2007; instead we saw that its strong ACV increase was aided by mega relationship awards, including Siemens’ large contract renewal with Atos.

France struggled in comparison with its stellar performance in 2014, when it reached record highs in both contracting and ACV. Values fell by 70 per cent during 2015, while contract volume dropped by 40 per cent. This sharp decline may mark a return to normal activity levels after a standout year of intense activity, rather than a longer-term weakening trend.

Both the Nordics and Benelux saw ACV gains in the fourth quarter but an overall decline in both ACV and deal counts for the year compared with 2014.

By sector, telecom followed the broad trend of increased contract activity at lower values, as the number of contract awards reached record numbers despite a slight decline in ACV. Travel and transport also achieved new highs in contract numbers, while values decreased.

The region’s powerhouse sectors, financial services and manufacturing, finished close to their 2014 figures. Financial services ended the year with a relatively flat performance while manufacturing bounced back to post an 8 per cent gain in ACV over last year, although its deal count plunged by 26 per cent.

It seems that the return of mega relationships in the fourth quarter gave EMEA the boost it needed to reach the landmark figure of €3 billion. After a slow start, the final few months of the year have helped put outsourcing in a good place as we exit 2015 and enter 2016.


About the Author

John KeppelJohn Keppel is Partner and President, ISG EMEA & Asia

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