Europe’s Outsourcing Market Lagging Rest Of World
October 27, 2009
LONDON, 22 October 2009 ― TPI, the largest sourcing data and advisory firm in the world and a unit of Information Services Group, Inc. (ISG) (NASDAQ:III, IIIU, IIIW), an industry-leading information-based services company, announced today that the outsourcing market in Europe, the Middle East and Africa (EMEA) continued to struggle during the third quarter despite a record performance for the industry globally.
The 3Q09 EMEA TPI Index, which tracks commercial outsourcing contracts valued at €20 million or more, recorded 68 transactions in the region with a total contract value (TCV) of €5.2 billion. TCV in EMEA fell 4 percent from the second quarter of 2009 and 12 percent from the third quarter of 2008 to its lowest level in six years.
The relative weakness in EMEA is especially pronounced when compared both with its unusually strong performance in 2008 and recent developments in the other major regions.
Year-to-date TCV of €18 billion in EMEA represents a 45 percent drop from a year ago and the lowest through three quarters since 2002. While EMEA is still the top region in the world by number of contracts, the Americas has now gained an edge in TCV.
Globally, 139 transactions were signed during the third quarter with a TCV of €19.7 billion, the highest third-quarter total on record and an increase of 21 percent sequentially and 40 percent year-over-year. However, without a handful of large contracts in which telecommunications carriers outsourced network operations to telecommunications service providers, a unique scope of work performed by a narrow sub-set of the industry, global TCV would have been just €13.7 billion, roughly in line with the slower pace of the previous four quarters.
Year to date, global TCV of more than €50 billion remains 10 percent below the same point in 2008, 23 percent lower when Telco-to-Telco activity is excluded.
“The outsourcing market in Europe has struggled so far this year with challenging economic conditions and it did not benefit from the Telco-to-Telco activity that lifted the industry globally,” said Duncan Aitchison, Partner & President, TPI EMEA. “However, we are cautiously optimistic about the next six to nine months for the Region based on significant activity in the industry’s pipeline, particularly in the ITO arena, with much of it involving large-scale relationships.”
One significant bright spot in the global market was the resurgence of mega-deals, those contracts worth €800 million or more. The €11 billion of mega-deal TCV, more than half of it from Telco-to-Telco contracts, was the highest quarterly total since the end of 2002. In EMEA, however, the mega-deal market is down 67 percent year to date.
Globally, the ITO market was heavily influenced by the impact of Network Operations Outsourcing. The TCV of ITO contracts reached €16 billion in the third quarter, a 14 percent jump from the prior quarter and the highest total since the fourth quarter of 2003, and year to date, is up 4.5 percent. When Telco-to-Telco activity is excluded, it was flat with the second quarter and year-to-date has declined 12.6 percent. In EMEA, ITO TCV excluding Telco-to-Telco contracts increased quarter over quarter by 17% to top €13 billion YTD. This, however, represents a decline of 39 percent from the comparable period in 2008.
The larger scale Business Process Outsourcing (BPO) market remained relatively lacklustre as companies chose to invest in ITO outsourcing in the current economic climate. Globally, the number of BPO contracts awarded year-to-date is down 25 percent from the same point in 2008 and TCV is down 45 percent. In EMEA, the BPO market is down 15 percent by number of contracts and 62 percent by TCV. Nevertheless, TPI continues to observe significant activity in the smaller BPO contracts (€5m -€10m) space.
The TPI Index provides a quarterly snapshot of the sourcing industry for clients, service providers, analysts and the media. Now in its 28th consecutive quarter, it is the authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.
To learn more and view presentation slides from the 3Q09 EMEA TPI Index conference call, please visit http://www.tpi.net/knowledgecenter/tpiindex/.
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