Europe’s outsourcing market still sluggish
27/07/2009
Economic pressures slowed pace of contracting activity in second quarter, finds TPI.

www.consultant-news.comFuente:   www.consultant-news.com    Fecha:  27.07.2009

Europe’s outsourcing market still sluggish

TPI, the sourcing data and advisory firm has released its second-quarter and first-half market data for Europe, the Middle East and Africa (EMEA) showing that outsourcing activity continues to be constrained by difficult economic conditions, despite its potential to soften the impact of the recession through cost savings and efficiency gains.

The TPI EMEA Index, which measures commercial outsourcing contracts valued at €20 million or more, found that the total number of contract awards in EMEA declined slightly from the first quarter to the second quarter. In addition, Total Contract Value (TCV) of just over €7 billion and Annualised Contract Value (ACV) – TCV divided by the duration of the contracts – of €1.2 billion represented declines of about 6 percent from first quarter results.

The sluggishness of the market amplified the contrast between the first halves of 2008 and 2009. Compared with the first six months of last year, which saw record levels of sourcing activity in EMEA, the region awarded 19 percent fewer contracts with 45 percent lower TCV and 60 percent lower ACV so far in 2009. Driving the declines were a reduction in larger deals as well as drastically reduced spending on business process outsourcing (BPO) alongside a marked reduction in outsourcing activity in some traditionally strong sectors that have been hard-hit by the recession.

Despite this, EMEA once again turned in the strongest performance of all the regions during the first half, with TCV considerably ahead of the Americas and Asia Pacific. Following the surge in the number and value of contracts witnessed in the first half of 2008, the region has returned to levels consistent with previous years, and several verticals in EMEA, including Diversified Financials, Consumer Durables, Utilities and Telecoms, increased their adoption of outsourcing.

“Today’s level of activity in the EMEA outsourcing marketplace looks a lot like it did in 2007,” said Duncan Aitchison, Partner and President, EMEA, TPI. “The exceptionally strong first half of 2008 appears to have been an anomaly, and we are now seeing a slower yet reasonably consistent pace of contract awards that provides some evidence of stability in the buying and selling flow.”

The TPI EMEA Index provides a quarterly snapshot of the European sourcing industry for clients, service providers, analysts and the media. Now in its 26th consecutive quarter, the TPI Index is the authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.

TPI Index highlights

Second-quarter results indicate that the European outsourcing market has entered into a period of activity similar to the levels recorded in 2007. In fact, to match the market’s results for the full year of 2008, EMEA’s high water mark, the region would need to sign €26 billion in TCV during the second half of this year, which in TPI’s view, is unlikely to happen.

The slowdown in the market is obvious in the precipitous decline in demand for BPO. In EMEA, TCV in the second quarter fell by 70% compared with the year-ago period. While this was the most pronounced decline, the BPO market is displaying weakness in all regions and across functions, including Facilities Management, which saw a 90% year-over-year drop in TCV (in EMEA) during the first half of 2009. The sole BPO mega deal signed thus far in 2009, the AXA-Capita contract, was not enough to lift the slight BPO results in EMEA for the first half.

By contrast, ITO in EMEA has fallen only to 2007 levels, with the sharpest declines from last year’s performance in Benelux, the Nordic countries and the United Kingdom, stabilising the broader market. In contrast, the DACH region and France are each showing steady growth in ITO TCV for the third successive first half.

Industry sectors

The second quarter also revealed some telling sector trends for EMEA. Not surprisingly, the banking sector, traditionally a heavy adopter of outsourcing services, has slowed its activity significantly in the wake of last year’s financial crisis. Oil & Gas, Aerospace & Defence and Food, Drink & Tobacco, to name a few, have also slumped in 2009.

At the same time, the Diversified Financials, Consumer Durables, Utilities and Telecoms sectors have been increasing their adoption of sourcing strategies. Those four sectors together account about 41 percent of the number of contracts and 52 percent of TCV awarded so far this year in the European region. In Diversified Financials, TCV more than tripled in the first half of 2009 compared to the year before, and in Consumer Durables, it rose 40 percent.

Regional differences

Overall, European regional market activity declined on all fronts during the first half of 2009 compared with the same period a year ago, reflecting the impact that the wave of economic hardship in the region has had on corporate decision-making. Although five of the eight global mega-deals awarded so far this year were signed in EMEA, this is far short of the nine mega-deals awarded in the first half of 2008.

Weakness in EMEA was offset by strong performance in Asia Pacific, which had its second best quarter ever with TCV up 200 percent over a year ago. Uncharacteristically, two of eight mega-deals and six of 15 mega-relationships have been awarded in the region thus far this year.

In the Americas, the TCV performance has been more evenly distributed during recent quarters than in Europe. However, in the second quarter, the Americas witnessed a sequential loss of 35 percent by TCV, and only one mega-deal has been signed in the region since 2009 began.

Summary

Duncan Aitchison continued, “The performance that we are seeing in the outsourcing market today is a clear reflection of the uncertainty and delay in decision-making that we first noted in the third quarter of last year. Although we do not anticipate a surge in activity in the very near future, we do expect to see a steady pace of contract awards through the remainder of 2009 as businesses look to keep a tight rein on their costs against the backdrop of a very challenging global economic picture.”