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Global outsourcing cools - ISG.

Global Outsourcing

Stamford, Conn.: Data from Information Services Group (ISG) shows that the value and number of outsourcing contracts awarded globally dropped during the first three months of the year in a familiar pattern of market cooling following two robust quarters in a row.

  • Outsourcing Market Cooled in First Quarter
  • EMEA shows biggest slowdown
  • 1Q12 Global TPI Index shows 'hangover effect' following two robust quarters
  • Restructurings up 82 percent, account for increasing share of market

The 1Q12 Global TPI Index, which covers commercial outsourcing contracts valued at $25 million or more, measured total contract value (TCV) of $18.7 billion, a decline of 22 percent from the same quarter a year ago and 35 percent from the previous quarter. The 184 contract awards during the first quarter represented a drop of 31 percent year-over-year and 18 percent sequentially.

A key factor affecting the market's first-quarter performance was the presence of only one mega-deal, defined as a contract with TCV of $1 billion or more. However, the market awarded seven mega-relationships, contracts with average annual TCV of at least $100 million. Furthermore, TCV from restructurings, which accounted for most of the mega-relationships, rose 82 percent year-over-year.

The weak first quarter comes on the heels of a record second half for the outsourcing market. In the last six months of 2011, global TCV rose 29 percent year-over-year to a record $55.8 billion.

"This first-quarter slowdown follows the strongest half for outsourcing in a decade, making for difficult comparisons," said John Keppel, Partner & President, Research and Managed Services, ISG. "We saw this same hangover effect in early 2010 as well as in early 2006. So there is historical precedent for the industry taking a breather after two robust periods."

The 1Q12 Global TPI Index showed first-quarter declines in both IT outsourcing (ITO) and
business process outsourcing (BPO). With weakness in all functional areas, ITO TCV fell 20
percent year-over-year and 37 percent sequentially. In BPO, TCV dropped 27 percent year-over-year and 30 percent sequentially despite an uptick in activity in Finance & Accounting,
Contact Centers and Procurement.

By region, the Americas turned in the best quarterly performance. Bolstered by the global
market's lone mega-deal, Americas TCV during the quarter was flat year-over-year and up 8
percent sequentially. Europe, the Middle East & Africa (EMEA) slowed significantly, due in part
to uncertainty stemming from fiscal concerns in the Eurozone. First-quarter TCV in EMEA fell 32 percent year-over-year and 53 percent sequentially. Asia Pacific TCV fell 36 percent year-over year and 33 percent sequentially.

"Looking ahead, we foresee a soft first half and a reviving second half to 2012, mainly because of the impact of an anticipated upswing in restructuring performance in the second half of this year", Keppel said.

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