EMEA Sourcing Up 10% in 2019, Says Research Firm ISG

The value of outsourcing contracts in the EMEA region rose 10 percent in 2019 as businesses sought to counter economic uncertainty by reducing costs and investing in digital solutions, according to the latest state-of-the-industry report (EMEA ISG Index) from global technology research and advisory firm, Information Services Group (ISG).

Measuring commercial outsourcing contracts with annual contract value (ACV) of €5 million or more, the EMEA ISG Index shows combined market ACV (including both as-a-service and managed services) in EMEA reached €17.1 billion in 2019, fueled by a notably strong second half. Managed services ACV, at €10.7 billion, rose 8 percent compared with the prior year, while as-a-service values set a new high of €6.4 billion, an increase of 13 percent. As-a-service accounted for 37 percent of the EMEA market in 2019.

The ACV (actual cash value) of managed services was €10.7 billion, up 8 percent from the previous year, while the ACV of as-a-service reached a new peak of €6.4 billion, an increase of 13 percent. As-a-service accounted for 37 percent of the EMEA market in 2019.

Growth in managed services was driven by a decline in Business Process Outsourcing (BPO), up 61 per cent from a weaker performance in 2018, according to ISG. Large contracts and the strength of facility management and contact center services boosted economic activity. By contrast, the ACV of Information Technology Outsourcing (ITO) fell by 3 percent as demand for infrastructure deals fell.

The ACVs in both Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS) have reached record levels by 2019. The SaaS market grew 13 percent due to the broad acceptance of SaaS solutions in the region, while the IaaS market grew 12 percent.

“The macroeconomic headwinds blowing through Europe have accelerated rather than slowed the pace of digital change in the region,” said Steve Hall, president of ISG. “Digital has become the new standard for enterprises in today’s technology-driven world. Companies are exploring opportunities for cost savings and re-investing in technologies that will transform their customer experience and compete with the pioneers.”

Market Insights for the Full Year 2019

United Kingdom and Ireland

The AVC of the combined market in the UK and Ireland increased by 13 percent to €5.5 billion in 2019, the best year since 2012. Despite continued uncertainty about Brexit, customers are considering greater IT investments and are focusing on digital transformation and the use of technology to increase productivity and improve the customer experience.

AVC of managed services increased 15 percent to €3.3 billion, up from 2018. ITO values declined 4 percent as profits in infrastructure deals were not enough to offset weaknesses in application development and maintenance (ADM) transactions. BPO’s ACV clearly climbed more than 50 percent, thanks to the strength of facility management and industry-specific BPO.

The As-a-service ACV exceeded €2 billion for the second year in a row and now accounts for 40 percent of the combined market in the United Kingdom and Ireland. Both SaaS and IaaS have reached new heights. SaaS increased 8 percent and IaaS by 10 percent from its 2018 totals.

DACH Region

The ACV of the combined market of €4.7 billion in DACH had fallen by 1 percent by 2019 due to economic turmoil, particularly in the production and energy sectors. According to ISG, despite the slight decline in ACV, 2019 was DACH’s second best year ever as customers aligned their managed services strategies and digital investments.

DACH saw the highest growth in the value of as-a-service contracts of all major European markets, with 22% in 2019, to €1.8 billion. As-a-service now accounts for 38 percent of the combined market. With a 22 percent increase in both SaaS and IaaS, customers continue to move to hybrid and multi-cloud environments.

The ACV of managed services in DACH decreased 11 percent to €2.9 billion, as the number of contracts dropped to its lowest level since 2015. ITO’s ACV plummeted 25 percent due to poor results in ADM and infrastructure. BPO’s ACV of €668 million was significantly higher than in previous years, boosted by an increase in multi-functional transactions and facility management.

Scandinavia

The ACV of the combined market in Scandinavia set a record in 2019, says ISG, with an annual increase of 15 percent to €2.1 billion. Growth was underpinned by gains in value in both managed services and as-a-service.

ACV of managed services increased 17 percent to €1.4 billion, with strong growth in ADM transactions and infrastructure. Although this is a smaller market, BPO grew 20 percent due to carrying capacity in most functional areas.

As-a-service ACV increased 12 percent to a record high of €735 million, and now accounts for 35 percent of ACV in the combined Scandinavian market, up 21 percent from just three years ago.

France

Steve Hall
“The macroeconomic headwinds blowing through Europe have accelerated rather than slowed the pace of digital change in the region,” said Steve Hall, president of ISG.

The ACV of the combined market in France reached €1.3 billion, according to ISG, an increase of 15% compared to 2018 and the best result in the last five years. Growth was driven by the increase in both managed services and as-a-service ACV.

The ACV of managed services reached its highest point in five years, up 23 percent, to €920 million. Robust contract activities resulted in a record number of deals, an increase of 38 percent compared to 2018. ITO rose 34 per cent over that period, boosted by infrastructure, which rose 47 per cent, and applications, which grew 25 per cent. The smaller BPO market dropped 20 percent due to the soft market of facility management and R&D outsourcing.

The ACV of as-a-service in France reached €406 million, slightly above the 2018 totals and accounting for 31 percent of the AVC of the combined market. SaaS increased by 6%, while IaaS decreased by 1%.

Breakdown by Sector

Despite bankruptcies in Europe in the travel sector, the contract value for managed services in the travel and transport sector rose by 12 percent in 2019, stated ISG. Travel agents are rationalizing their services and focusing on cost savings. Contracts for as-a-service increased by 15 percent, as digital technologies make collaboration between multiple industry participants more dynamic and encourage businesses to adopt a customer-focused attitude.

Manufacturing growth was up 72 percent in the United Kingdom and Ireland, but fell 16 percent in DACH and 12 percent in France. In 2019, the number of contacts with as-a-service in EMEA grew by 10 percent as companies use new technology and digitization in the areas of smart manufacturing, Internet of Things and mobile and digital platforms.

The ACV of the combined financial services market rose 14 percent in 2019 as banks seek to transform their customer experience and digitize services. Growth was recorded in all major European markets, except DACH, where values fell by 19 percent.

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