Market Overview

Europe's Outsourcing Market Pauses Following Record Second Half


Europe's Outsourcing Market Pauses Following Record Second Half

1Q12 EMEA TPI Index: Total contract value down 32 percent to euro 6.9 billion

Absence of mega-deals slows both IT, business process outsourcing segments

PR Newswire

LONDON, April 18, 2012 /PRNewswire/ -- Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company, today released data showing the outsourcing market in Europe, the Middle East & Africa (EMEA) slowed significantly in the first quarter of the year following a record performance in the fourth quarter of 2011.

The 1Q12 EMEA TPI Index, which measures contracts valued at euro 20 million or more, found total contract value (TCV) in the region of euro 6.9 billion, a drop of 32 percent year-on-year and 53 percent sequentially. A total of 79 contracts were awarded in the first quarter, a decline of 37 percent year-on-year and 23 percent sequentially.

In early 2006 and early 2010, the outsourcing market experienced a similar pause in activity following two consecutive strong quarters. In EMEA, this 'hangover effect' during the first quarter of 2012 was compounded by the uncertainty caused by ongoing Eurozone financial concerns.

"This first-quarter slowdown in EMEA follows the strongest half-year and full-year results we have seen in a decade, which made for very difficult comparisons," said Duncan Aitchison, Partner & President, ISG North Europe. "However, we expect outsourcing activity and TCV to pick up in the second half of 2012 and project full-year results to be in line with historical norms."

The TPI Index, presented by ISG, provides a quarterly snapshot of the sourcing industry for clients, service providers, analysts and the media. Now in its 38th consecutive quarter, it is the industry's authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.

For the first time since 2009 and only the fifth time in the last decade, EMEA awarded no mega-deals (those contracts with TCV of at least euro 800 million) in the first quarter. However, mega-relationships (contracts with more than euro 80 million in annual contract value) fell within historical norms for both number and value, indicating a shift in buying behaviour towards agreements with shorter durations.

In the UK, the pause in contracting caused TCV to fall to euro 2.5 billion in the first quarter, a significant year-on-year and sequential decline.

In Germany, Austria and Switzerland, the market declined by both TCV and number of contracts in the first quarter. However, DACH was the only sub-region to remain ahead of its five-year like-quarter average, with TCV for the quarter reaching euro 1.4 billion.

By region, the Americas turned in the best quarterly performance. Americas TCV was flat year-on-year and up eight percent sequentially, though still shy of EMEA TCV. Asia Pacific TCV fell 36 percent year-on-year and 33 percent sequentially

By scope, IT outsourcing (ITO) and business process outsourcing (BPO) both declined in activity and value from strong performances in the fourth quarter of 2011.

"While BPO contract value declined by 42 percent from last quarter, this says more about its outstanding run at the end of last year than interest in BPO at the start of this year," Aitchison said. "The continued appetite for BPO is clear from the number of contracts awarded in EMEA in the first quarter, which increased by 26 percent."

Among the major industry groups in the region, Manufacturing and Financial Services accounted for the lion's share of awards in the first quarter. The Manufacturing sector, with TCV awarded of euro 2.5 billion, recorded its best-ever first-quarter performance.

"Looking ahead to the remainder of the year, we predict that the EMEA market will endure a soft first half but finish 2012 with a resilient second half thanks in part to an upswing in contract restructurings," Aitchison said.  "Going forward, we believe restructurings will continue to make up a large part of outsourcing activity as clients and service providers increasingly favor the greater flexibility of shorter-term contracts."

To learn more about the 1Q12 EMEA TPI Index or view presentation slides, please visit:

About Information Services Group
Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 700 employees and operates in 21 countries. For additional information, visit

SOURCE Information Services Group

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