First-quarter outsourcing value in EMEA rises 19 percent ** Restructuring activity leads the charge, surging in volume and counts ** Both ITO and BPO post year-on-year gains.
The outsourcing market in the Europe, Middle East & Africa (EMEA) region got off to a strong start in 2016, with double-digit growth in both contract value and volume, according to data released today by Information Services Group (ISG) (NASDAQ:III), a leading technology insights, market intelligence and advisory services company.
The EMEA ISG Outsourcing Index®, which measures commercial outsourcing contracts with an annual contract value (ACV) of €4 million or more, revealed that ACV in EMEA reached €2.25 billion in the first quarter, an increase of 19 percent over the same period in 2015. The region also saw a 28 percent increase in contracting activity over the same prior-year period. The EMEA results mirrored the global market results, which saw ACV reach almost €5 billion, up 20 percent year-on-year, and volume grow by 32 percent.
Restructuring drove the market in EMEA, with ACV rising 115 percent while the number of contracts grew by 91 percent, making this the second most active quarter ever for restructurings in the region. The value of new scope contracts fell, but with 97 deals signed, activity remained close to the 100-contract level – the sign of healthy contracting activity.
Both Information Technology Outsourcing (ITO) and Business Process Outsourcing registered gains in the quarter, with ITO up 20 percent year-over-year, reaching almost €1.5 billion in ACV from 115 contracts. The boost marked a return to form for ITO, led by applications design and maintenance (ADM) work and contracts bundling applications with infrastructure.
BPO started the year with its best first quarter since 2012, soaring over last year’s first quarter with a 41 percent rise in ACV. Most of this increased value came from a large award in Facilities Management and notable strength in contact center, finance and accounting, and multi-function contracts. The number of BPO awards also saw a healthy increase, up 15 percent compared with the first quarter of 2015.
“As forecast by ISG, 2016 got off to a strong start in EMEA. The increased ACV and contract activity in the first quarter are a welcome contrast to 2015’s sluggish start and suggest a healthy market flow for the region," said John Keppel, partner and president of ISG. "The strong year-on-year growth in ITO value and volume suggests that technology solutions continue to have a positive impact in many areas, even as work increasingly is moved to the cloud.
“The notable value and volume gains in BPO, along with the surge in restructuring activity, reflect growing demand for business outcomes in outsourcing and the opportunity for organizations to digitize and make room for new technologies.”
By market, first quarter ACV and contract numbers in the UK grew by around 10 percent year on year. Following two very soft quarters at the end of 2015, outsourcing activity in the UK has returned to historical levels. It remains to be seen whether this recovery is the start of an upward trend.
The first quarter of 2016 saw the Germany, Austria and Switzerland (DACH) market post its lowest ACV in more than eight years. Despite this ACV decline, the 29 contracts signed was up 32 percent year on year, pointing to increased contracting activity at much smaller values and a sign of increasing maturity in the DACH market.
Following an especially weak start to 2015, France rebounded somewhat in the first quarter as ACV increased by 33 percent, albeit off a small base. The number of contract awards doubled year on year, returning the French market to more typical contracting levels.
The strong year-on-year ACV growth in the Nordics was fueled in part by a large deal between Volvo and HCL, though a 200 percent increase in contract numbers made this the second best quarter ever for outsourcing activity in the Nordics.
In other markets, ACV in the Benelux countries dropped sharply this quarter, while Southern Europe moved up by a triple-digit percentage. However, within these markets, the presence or absence of a midsized deal can contribute significantly to performance, so their Q1 results are not necessarily reflective of a wider trend.
By sector, manufacturing stood out. Its ACV increased by 177 percent year on year. Although the Volvo/HCL deal contributed to this rise, the doubling in the number of contracts signed in the sector underpinned the solid results. Likewise, telecom also saw large awards such as the IBM-Telefonica finance and accounting deal, and the number of transactions grew, up 67 percent compared with the same period a year ago.
While ACV in financial services dropped 30 percent against the values posted in a stand-out 1Q15, the number of contracts increased, with noteworthy deals including HSBC-Jones Lang Lasalle’s facility management transaction and Accenture-RSA’s insurance BPO deal.
"Looking forward, we expect a more difficult year-over-year comparison in the second quarter of 2016," said Keppel. "Longer term though, ACV levels should remain in positive territory for the year due to the market's fast start in 2016. We see consistent demand in the UK and pockets of increasing long-term demand across several of the smaller EMEA markets."
ISG presented the Q1 2016 EMEA ISG Outsourcing Index® during a conference call for media and analysts.
To listen to an audio replay of the call and view presentation slides, please visit: https://www.isg-one.com/web/research-insights/isg-outsourcing-index/