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Outsourcing market declines in the UK

The value of major outsourcing contracts agreed in the UK in the first three months of this year fell relative to the same period last year, according to new figures that have been published.

A new report by the Information Services Group (ISG) said that the total annual contract value of the outsourcing deals struck in the UK between the beginning of January and end of March was $750 million. In comparison, in the first quarter of 2014 the value of UK outsourcing agreements finalised totaled well in excess of $1 billion.

According to the ISG, there were 305 outsourcing deals finalised across the world in the first quarter of 2015, with a total annual contract value of $5.1bn, down from the $6.5bn recorded for deals concluded in the final three months of last year. The ISG figures only account for outsourcing contracts worth at least €4m a year.

Of the contracts finalised, 201 were IT outsourcing agreements and 104 were business process outsourcing deals, with total annual contract values of $3.5bn and $1.6bn respectively.

ISG said that $2.4bn of the outsourcing contracts represented in its research were finalised in Europe, the Middle East or Africa (EMEA) but that this was a 26% decline on comparative figures from the first quarter of 2014. The number of contracts finalised in the EMEA region in the first quarter of 2015 was 128, down about 25% on 2014's comparative figures.

"This was due mainly to a drop in sourcing business in the UK, a lull most likely caused by the run-up to the next election, and in France, which came off its best year ever in 2014," the ISG said.

The value of outsourcing contracts in EMEA in the financial services sector bucked the declining trend in the region. The value of those contracts totalled $1.23bn, up from just below the $0.6bn total deals finalised in the first quarter of 2014 represented, the ISG said.

ISG said, however, that it expects the outsourcing market to "rebound" in the second half of this year. However, it said that in future it sees "an explosion of new technologies and delivery models that will spur competition and falling prices not seen since the early 2000s". Already automation, robotics and cloud computing is helping to drive down the cost of outsourcing, with price declines of more than 20% in some cases, it said.

"While we are used to the ever-present competitive dynamics of the sourcing marketplace, even by our own industry’s standards we are currently witnessing some marked shifts in pricing across a number of areas as the compounded impacts of ARC (Automation, Robotics and Cloud) take hold," John Keppel, partner and president of ISG, said. "The unprecedented change brought about by ARC and technology innovation is creating substantial opportunity but also substantial risk. Clarity of leadership and strategy will be required to navigate these turbulent waters."

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