Value of 2013 outsourcing contracts slumps

Out-Law News | 22 Jan 2014 | 12:52 pm | 1 min. read

The total value of contracts agreed in the global outsourcing market in 2013 shrunk 18% compared to the previous year, according to new research from analysts.

Information Services Group (ISG) said that although the total number of outsourcing contracts awarded last year was 1,155 – up 2% on 2012 figures – it said the value of those contacts fell 18% to $18.7 billion in total. The figures, contained in the Global ISG Outsourcing Index (25-page / 2.46MB PDF), account for commercial outsourcing contracts that have an annual contract value of at least $5 million.

A reduction in the number of major outsourcing contracts worth at least $100m annually and a move towards "smaller deal sizes", together with the weak performance of the business process outsourcing (BPO) market and a decline in manufacturing activities were behind the slump, ISG said.

John Keppel, president of ISG, said the statistics were in line with predictions.

"On the surface, they show a fourth quarter that didn’t come in strong enough to salvage a disappointing first half, but from a longer-term perspective, they are broadly in line with pre-recession market levels,” Keppel said. "In this post-recessionary period, we are beginning to see changes in demand for sourcing.  Used principally as a tool for exploiting rapid cost-savings potential during the recessionary period, sourcing is now being used for strategic advantage as enterprises begin to move into growth modes."

A record 587 outsourcing contracts were agreed in Europe, the Middle East and Africa (EMEA) during 2013 and the total annual contract value from those deals was $10.2 billion. The value of restructured outsourcing contracts and IT outsourcing contracts in EMEA grew, but there was a slump in the value of all outsourcing contracts agreed in UK & Ireland. This was despite there being a 13% increase in the number of outsourcing contracts finalised in that market during the year, ISG said.

The reduction in total annual contract values for UK & Ireland outsourcing deals in 2013 could be attributed to a "lack of large BPO deals" in that market, it added.

ISG said that the 22% overall rise it had recorded in the number of outsourcing contract restructurings during 2013 highlighted the trend of businesses moving away from single suppliers to multi-sourcing arrangements. The number of IT outsourcing contracts finalised last year rose 8% across the globe although the annual value of those contracts declined 8% relative to 2012 figures, it said.

In Asia Pacific, the annual value of outsourcing contracts agreed in 2013 fell 40% from 2012 figures, which ISG described as "exceptionally strong". This was allied to a more than 10% drop in the number of outsourcing contracts agreed in the region last year compared to during the previous 12 months.