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Global Outsourcing Industry still Strong in 2014 despite Weak Q3

by: Sarah Joson

Monday, October 20, 2014 |

Resilient Global Outsourcing Industry

Highlights of the recent Outsourcing Index organized and published by technology consultancy firm Information Services Group (ISG) were recently posted in MarketWatch.com. The report stated that despite a slow third quarter, the global outsourcing industry is poised to achieve double-digit growth for 2014.

The Outsourcing Index covered the activity of commercial outsourcing contracts with an annual contract value (ACV) of $5 million or more. It found that year-to-date, ACV climbed 13 percent to $17.1 billion in various segments such as regions, contract types and sizes, and service areas. Also, the contract volume increased by four percent.

As for this year’s third quarter, ACV weakened by double digits in almost every location and segment, as the market took a step back from an aggressive first half where ACV for the first and second quarter was $6 billion. When compared to the ACV of 2013’s third quarter, the difference is 21 percent and only valued at $4.6 billion. The number of closed deals for Q3 2014 is also 32 percent lower to just 239.
According to John Keppel, ISG Partner and President, recent years showed that third quarters are becoming stronger, but this year, it went back to the normal and weaker pace and is the weakest for 2014 so far. The strong performance of the industry from January up to now keeps the industry on target and could even lead to a strong finish.  

Changes in ACV scope and activity affected the performance of the third quarter. The number of mega-relationships which are $100 million and over, as well as small-time deals, is also found to have declined.

If viewed from each segment, information technology outsourcing (ITO) decreased by 23 percent from 2013 due to the slowdown of new-scope awards. Activity in the business process outsourcing (BPO) space also declined, but increased in terms of new-scope awards particularly in the Americas. The report also pointed out that the BPO market is no longer strictly focused on horizontal back office process, but is now more on facilities management, industry-specific work, and voice operations.

In the Americas, ACV is up by 11 percent from last year’s third quarter, and is now $1.9 billion driven by large contracts in Canada and Brazil. However, the volume of deals decreased by 30 percent. On the aspect of year-to-date, ACV is 18 percent higher. Meanwhile, ITO contracts rose by 20 percent and BPO contracts are up by 17 percent. ITO contracts are at its highest from January to September which could mean more contracts amidst an increase in multi-sourcing activity.

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