US-listed researcher Information Services Group (ISG) says that third-quarter outsourcing activity in the EMEA region held steady with the prior year, even as contract volume increased, underscoring a continuing trend toward smaller deal sizes.
The EMEA ISG Outsourcing Index, which measures commercial outsourcing contracts with an annual contract value (ACV) of €4 million or more, found that even though third-quarter ACV of €2.1bn was level with the previous year, the number of contracts signed in the quarter rose 7 percent, to 139. Compared with the strong second quarter of 2015, however, AVC declined 5 percent and contract counts were down 16%. The slower pace of contracting in the third quarter may reflect economic caution across Europe as a result of the Eurozone debt crisis, ISG said.
ACV in the third quarter exceeded the €2bn mark for the eighth time in the past nine quarters. The first three quarters of 2015 saw a record number of small deals with ACV of between €4m and €8m, marking a clear shift to a higher number of lower-value transactions. Correspondingly, there is less reliance on mega-relationships (contracts valued at €80m or greater), which are down by a third in 2015 compared with the equivalent periods in the last three years.
"The market trend continues to shift toward smaller deals, as enterprises buy more specialized services from smaller, niche providers, and look to maintain the flexibility they need to take advantage of fast-changing technologies, lower pricing and evolving operating models," said John Keppel, partner and president, ISG North Europe.
The fall in large awards in 2015 has affected ITO in particular, which has seen a 28% drop in ACV year to date, to €4.5bn, the lowest level since 2009.
The healthy level of contracting activity was achieved without a major influence of mega-relationships (contracts valued at €80 million or greater), as only 2 were signed in Europe in Q2, indicating a market shift towards a higher number of smaller deals
Dach, the region’s second-largest outsourcing market, was a notable bright spot, having seen consistent growth through 2015, achieving its strongest quarterly ACV performance since 2011.
Financial Services had a standout quarter, with several large awards leading to a 35 percent increase in ACV, while counts increased by 10%. Manufacturing posted a striking decline in ACV, which sank to its lowest level since 2007.