Out-Law / Your Daily Need-To-Know

UK businesses continuing trend of multi-sourcing, market researchers say

03 Aug 2015, 12:24 pm

A record number of outsourcing contracts were concluded during the second quarter (Q2) of this year in the Europe, Middle East and Africa (EMEA) region, according to new research.

The figures, from Information Services Group (ISG), highlight a 150% rise in the number of outsourcing contracts concluded in the UK in Q2 compared to the same three month period in 2014. In total there were 169 outsourcing deals finalised in EMEA in Q2, with a quarterly record total annual contract value (ACV) of €2.2 billion, ISG said.

Despite the strong quarterly figures, the outsourcing market in EMEA for the first half of 2015 lags behind the performance of the market in 2014, ISG said. This is because of weak performance in the EMEA outsourcing market in the early months of this year.

According to its report, the total annual contract value for all the outsourcing deals struck in EMEA in the first half of 2015 is 12% behind the value recorded for the same period last year.

The 293 contracts finalised in the first half of the year is also less than the comparative figure of 322 for 2014, ISG said.

Only two "mega-relationships were signed" in EMEA in Q2, reflecting the trend towards "shorter and smaller contracts", ISG said.

"These findings very much accord with our experience of sourcing trends both in the UK and overseas," IT and telecoms contracts expert Simon Colvin of Pinsent Masons, the law firm behind Out-Law.com, said. "The drive for greater flexibility in contracting and outsourcing means shorter, lower value contracts are becoming commonplace. In the UK, the market is maturing. The digital agenda focuses on agility and commoditisation in the outsourcing of tech and related services."

"In both the public and private sectors, we see more multi-sourcing and best of breed strategies being implemented. Of course these are not without their challenges, from both operational and legal perspectives, but they certainly reflect a greater maturity in the customer approach to procurement and sourcing of technology services," he said.

John Keppel, partner and president of ISG in North Europe, said: "The outsourcing market has shifted significantly in recent years to higher numbers of contract awards at lower ACV levels. To put this into context, the €5.7 billion in ACV awarded in EMEA during the first half of 2008 just before the recession hit, came from 199 contracts. The €4.1 billion in the first half of this year came from 293 awards, aptly illustrating the shift to a greater number of smaller contracts in the marketplace today."