Outsourcing market hit by political uncertainty

4 May 2017

Economic insecurity caused by Brexit and the French general election has put the brakes on public sector outsourcing in the EMEA region, according to an index.

Some €6.3bn worth of public sector outsourcing contracts were awarded in 2016, nearly half that of the prior 12 months, as uncertainty compelled governments to put outsourcing on hold, according to Information Services Group.

Conversely, the private sector outsourcing market reached €3.5bn in the first quarter of 2017, up more than 19% year on year.

The “as-a-service” market, which uses cloud computing solutions to provide IT services externally, has taken off over the past two years.

In 2016 the annual value of as-a-service contracts surpassed €1bn for the first time, rising 48% over last year as organisations increasingly embraced digital solutions.

In traditional sourcing the UK registered its highest ever contract value in a quarter, with €1.4bn awarded following three consecutive weak quarters in 2016. 

The €70m awarded in the first quarter in France was the country’s weakest performance in five years, 60% down compared to the final quarter of 2016.

Financial services stood out among sectors, with as-a-service contract values in the sector rising 43% as banks and insurers embraced new technologies to deliver cost reductions and customer services.

The business services sector performed strongly, with contract values reaching just over €1bn, while as-a-service accounted for more than half of the total. Telecoms and media also saw values up 31% compared with the prior year. Manufacturing outsourcing values, however, fell by 37% in 2016 compared to 2015.

The index stressed that traditional sourcing still dwarfs as-a-service in EMEA, unlike in the Americas where traditional and as-service sourcing claim equal shares of the market.

In Asia Pacific, as-a service sourcing is now double the size of the traditional market.

And the index forecast the public sector market should return to its usual value of between €8bn and €10bn once the uncertainties of Brexit and the French general election have passed.

Globally, contract value for the combined commercial and public sector market was worth €18.7bn for this quarter, up 15% from the fourth quarter of 2016 but down from the €20.5bn benchmark reached in the first quarter of 2016. Global as-a-service contract value increased by more than €1bn, or 38%, in the first quarter of 2017 year on year.

John Keppel, partner and president of ISG, said: “There is a lot to be positive about, with the EMEA market showing strength in both traditional sourcing and as-a-service contracting. 

“After a slow start, as-a-service continues to go from strength to strength. As a result of this and some robust activity in traditional sourcing, we expect high single-digit gains in the EMEA market for the rest of 2017.”

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