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 got off to a strong start in 2016, with double-digit growth in both contract value and volume, reaching €2.25 billion in the first quarter, an increase of 19 per cent over the same period in 2015.
The region also saw a 28 per cent 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 per cent.
Restructuring drove the market in EMEA, with ACV rising 115 per cent while the number of contracts grew by 91 per cent, 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 per cent 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 work and contracts bundling applications with infrastructure.
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. 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.
BPO started the year with its best first quarter since 2012, soaring over last year’s first quarter with a 41 per cent rise in ACV. Most of this increased value came from a large award in Facilities Management and notable strength in contact centre, finance and accounting, and multi-function contracts. The number of BPO awards also saw a healthy increase, up 15 per cent compared with the first quarter of 2015.
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 organisations to digitise and make room for new technologies.
Looking at each market individually, first quarter ACV and contract numbers in the UK grew by around 10 per cent 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.
DACH, however, posted its lowest ACV in more than eight years. Despite this ACV decline, the 29 contracts signed was up 32 per cent 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 per cent, 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 fuelled in part by a large deal between Volvo and HCL, though a 200 per cent 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.
By sector, manufacturing stood out. Its ACV increased by 177 per cent 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 per cent 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. 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.