Outsourcing: Coming in from the cold as the economy thaws?

Having fallen away, the number of outsourcing contracts signed is rising again - but organisations are renegotiating a lot of existing deals.

Outsourcing deals have jumped over the past three months, thanks to the warming economic climate, deferred decisions and pent-up demand.

But the sums spent on outsourcing globally in 2013 are still 20 percent down on a year ago, according to the latest figures from the ISG Outsourcing Index, which tracks commercial outsourcing contracts with an annual value of €4m ($5.5m) and above.

The value of renegotiated deals has also risen significantly on the previous quarter – up 200 percent – but shows only a marginal increase of three percent on the same point last year.

The Europe, Middle East, Africa region registers the highest-ever number of contract awards in a single quarter, with 176 contracts worth a combined value of €2.8bn ($3.8bn).

That figure constitutes a 60 percent increase quarter-on-quarter and year-on-year. The average value of contracts rose 16 percent compared with the same quarter last year and 89 percent over the past three months.

"While the improvements we are seeing are in comparison to weak performances in the first half, we believe the high level of contracting activity speaks volumes about the underlying strength of the current market," ISG North Europe partner and president John Keppel said in a statement.

Along with improved business confidence, another factor in the latest figures is the considerable change in operating conditions that has affected certain sectors – including financial services, travel and tourism – in recent months, which makes them likely to outsource more, Keppel said.

In the Americas region, spending of €1.4bn ($1.9bn) is down seven percent on the same quarter last year and 26 percent for the whole year to date, year on year.

Worldwide, of the outsourcing contracts with an annual value of over €80m ($109m) – termed 'mega-relationships' by ISG – nine out of 10 occurred in EMEA, underlining its position as the world’s largest outsourcing market.

Organisations in the region are spending on IT outsourcing, with €2.3bn ($3.1bn) awarded in past three months, up 177 percent over the second quarter, and 125 contracts signed - the highest number ever recorded in any quarter in EMEA.

Even though the average value of business process outsourcing contracts dipped in the quarter, activity rose, with 51 contract awards, up nine percent on the last quarter and a 70 percent rise year on year.