ISG Index: Global Outsourcing Industry at Record Highs - KCBD NewsChannel 11 Lubbock

ISG Index: Global Outsourcing Industry at Record Highs

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SOURCE Information Services Group (ISG)

Record volume pushes ACV to an all-time high of $6.4 billion in the second quarter;

First-half volume also at a new high, with $12.4 billion of ACV the second-best ever;

Broad-based strength seen across regions, domains and industry sectors;

ISG forecasts ACV to grow 25 percent for the full year, based on first-half performance

STAMFORD, Conn., July 15, 2014 /PRNewswire/ -- Activity in the global outsourcing industry for the previous three months reached its highest level ever in a second quarter, producing record contract values for the period and contributing to the one of the strongest first halves ever, according to the latest market data from Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company.

Data from the ISG Outsourcing Index, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show a record 340 contracts were signed in the second quarter, with the greatest growth coming from deals valued at under $40 million annually. This record-high volume generated $6.4 billion in ACV, also an all-time record for the period, and up 72 percent versus last year's weak second quarter, despite a falloff in the number of mega deals valued at more than $100 million.

Coming on top of a strong first quarter this year, the second-quarter results pushed the first-half contract count to a record 663, up 30 percent, and ACV to $12.4 billion, the third-best mark ever for a first half and up 34 percent over last year.

"We are seeing broad-based strength across the entire global outsourcing market, with growth almost everywhere we look," said ISG President and Partner John Keppel. "Deal counts are strong across the board, global ACV is surging, all three regions – Americas, Europe, and Asia Pacific – are seeing upward momentum, information technology outsourcing (ITO) continues to forge ahead, and, in a potential bright spot for the global economy, the manufacturing sector is seeing a significant rebound in deal activity and value. In short, the demand for outsourcing is extremely robust at the moment, and that bodes well for the rest of the year."

The growth in smaller-sized deals remains the primary driver of the market, as enterprises continue to award lower-value contracts of shorter duration to more providers. Although the number of mega relationships was down from the 2014 first quarter, when 11 such contracts were awarded, there were still seven $100 million-plus deals signed in the second quarter, resulting in first-half activity that is indicative of a historically strong full-year performance.

The continued growth in restructured contracts, combined with a steady level of new scope awards, is another sign of a growing market, Keppel pointed out. ACV of restructured contracts, at $4.5 billion, hit a record high for a first half, while new-scope ACV, at $7.9 billion, remained broadly in line with first-half levels over the last several years.

In terms of domains, ITO saw its second-quarter ACV double, to $4.9 billion, over last year and its contract count reach a record high of 250 for the quarter. In the first half, ACV reached its second-highest level ever for the period, fueled by a record performance in the manufacturing sector, which awarded an all-time high of 129 contracts worth $2.7 billion in ACV.

Business process outsourcing, meanwhile, turned in a slightly improved quarter but its first-half performance was down 4 percent, belying its essentially solid growth over the last five years.  Traditional back-office functions, like human resources, contact centers, procurement, and finance and accounting haven't fared as well as industry-specific BPO, which has become one of the largest and fastest-growing markets.

By region, EMEA notched its best first-half ACV, $6.3 billion, in the last six years. Second-quarter ACV of $3.1 billion was up 45 percent from last year, fueled by continued strength in mega deals, new-scope and ITO contracts, as overall contract levels rose 35 percent from the prior-year period. Within the region, France turned in its best first half ever, while Southern Europe and the Nordics also had standout performances, even as the UK and Ireland improved only slightly from last year's first half. Manufacturing, financial services, and telecommunications were all up noticeably.

The Americas, meanwhile, rebounded from a string of relatively weak quarters, logging its best quarterly performance and breaking through the $2 billion ACV mark for the first time since the first quarter of 2013. ACV, at $2.3 billion, was 22 percent higher than the first quarter of 2014 and more than double that of the year-ago quarter. The increase in value was driven by a surge in overall contract awards, which climbed more than 40 percent from the first quarter and more than 120 percent from the comparable period in 2013. First-half ACV performance was equally impressive, up more than 20 percent over last year. New-scope, restructured, ITO and BPO deals all contributed to the first-half growth in ACV, while financial services and manufacturing were the top industry performers in the half.

Asia Pacific continued a comeback of its own, recording its second consecutive quarter of ACV at around $900 million, a level double that of each of the prior three quarters. Taken together, they produced the region's second-best first half in the last decade. Large deals were the main contributor, as overall deal count dropped 16 percent from the first quarter. New-scope and ITO contracts saw particularly sizeable gains, while manufacturing and telecommunications were the big industry winners at the half-year mark. Within Asia Pacific, both Japan and the Australia-New Zealand sub-region recorded the largest gains in ACV in the first half.

"Outsourcing growth was impressive in all three regions: the Americas' upward trend despite no megadeals, Europe's lock on ACV, and the large-deal activity that brought up Asia Pacific's numbers," said Keppel. "Globally, the solid results we saw in volume, value and sector increase our confidence that this is not just a blip, but a sustainable period of growth for the industry. Nevertheless, looking ahead, we're bracing for the third quarter to compare poorly to last year's strong third-quarter performance. Yet, our market intelligence reveals a number of deals in the pipeline that will be awarded later this year. On that basis, we expect ACV for all of 2014 to grow 25 percent, in line with the numbers we saw in 2012."

Now in its 47th consecutive quarter, the ISG Outsourcing Index provides a quarterly review of the latest sourcing industry data and trends for clients, service providers, analysts and the media.  For more than a decade, it has been the authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider performance.

The 2Q 2014 ISG Outsourcing Index was presented during a conference call and webcast for media and analysts today.  To listen to an audio replay of the call and view presentation slides, please visit http://www.isg-one.com/web/research-insights/isg-outsourcing-index/.

About Information Services Group
Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience and global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 850 employees and operates in 21 countries.

For additional information, visit www.isg-one.com.

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