Outsourcing

Outsourcing jumps but why are deal sizes shrinking?

Just because more outsourcing contracts are being signed, it doesn't mean businesses are spending more again on outside providers.
Last year firms struck more outsourcing deals than ever before but for smaller amounts, as their focus shifts from cost-cutting to strategic partnerships.

Some 587 contracts were signed in 2013 in the Europe, Middle East and Africa region - an 18 percent year-on-year rise, according to the ISG Outsourcing Index.

However, the €8.2bn ($11.21bn) total annual value of contracts for EMEA was down six percent on 2012's €8.7bn ($11.89bn). 

The peak was 2011, when total outsourcing deals reached €9.5bn ($12.99bn).

The ISG figures show that of 2013's 587 contracts, 456 fell in the annual value range of €4m ($5.5m) to €16m ($21.9m).

"The conventional model of outsourcing has shifted," ISG North Europe partner and president John Keppel.

During the recession buyers became comfortable with using specialist or niche providers to help them cut costs, he said. Now that businesses are emerging from the downturn they are using that same approach for strategic plans.

"That’s not to say mega-relationships will disappear altogether," Keppel said. "Larger contracts will continue to play a part in the market, but the use of multi-sourcing is set to become more widespread."

In the final quarter of 2013, only two contracts fell into what ISG terms the mega-relationship category, with annual contract values of more than €80m ($109m). These were signed by financial services firms Dexia in Belgium and DNB in Norway.

The amount of contract restructuring activity rose in 2013, up 30 percent year-on-year and at €3.6bn ($4.92bn) accounted for 40 percent of the annual contract values.

A total for new contracts of €4.6bn ($6.29bn) in 2013 was the lowest since 2006 and a fifth down on 2012.

Business process outsourcing and IT outsourcing are heading in opposite directions, with a sharp decline in the value of business process outsourcing even though the 178 contracts awarded in 2013 is a record for the EMEA region.

However, the IT outsourcing market in EMEA is now bigger by value and contracts awarded than that of the Americas and Asia Pacific markets combined.

A record 409 IT outsourcing contracts were signed in 2013 in EMEA for a total annual value of €1.7bn ($2.32bn).

The ISG Outsourcing Index measures commercial outsourcing contracts with annual contract values of more than €4m ($5.5m).

About

Toby Wolpe is a senior reporter at TechRepublic in London. He started in technology journalism when the Apple II was state of the art.

2 comments
adornoe
adornoe

So, where the heck are these businesses that "are emerging from the downturn".  


Businesses have been cutting down their sizes, which is not a sign of "emerging"; rather, it's a sign of weak economies and weaker businesses.


Weaker businesses will not need big outsourcing contracts, and the 6% reduction, after consideration for the current conditions, would actually reflect a rise of the contracts for a lot of those companies. All things are relative, and a company that had to downsize because of the lousy economy, will not be spending as much as in 2011 and before, but the relative amount spent will be larger when the new smaller size of the company is considered. 


Somebody above, (the writer, or source of the report), is spinning the real facts in order to make those in power look good. 

jsargent
jsargent

@adornoe  "Somebody above, (the writer, or source of the report), is spinning the real facts in order to make those in power look good." I don't think there's anything political or trying to make anyone look good here except for some wishful thinking by the author trying to find some meaning to what's going on. I see a lot of businesses emerging from the downturn but not for the right reasons. There are a number of small businesses who have taken advantage of layoffs and wage drops from larger companies, which are more flexible, inside and out, that can do the same contract for a fraction of the cost of the mainstream companies.

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