Smaller, shorter deals push global outsourcing activity to record level

By Gurjit Degun | Supply Chain Management

Activity in the global outsourcing industry reached its highest level in a second quarter, contributing to one of the strongest first halves of the year on record.

That’s according to data from the Information Services Group (ISG) Outsourcing Index, which measures commercial outsourcing contracts with an annual contract value (ACV) of $5 million (£2.9 million) or more.

It found that 340 contracts were signed in the second quarter – the most ever recorded, with the greatest growth coming from deals valued at under $40 million (£23.3 million) annually.

“This record-high volume generated $6.4 billion (£3.7 billion) in ACV, also an all-time record for the period, and up 72 per cent on last year’s weak second quarter, despite a fall-off in the number of mega deals valued at more than $100 million (£58.5 million),” said ISG.

The Index said the second quarter results led to a 30 per cent increase in the number of contracts that were let in the first half of the year – a record 663. ACV hit $12.4 billion (£7.3 billion), the third-best mark ever for a first half, and up 34 per cent compared with last year.

ISG said companies are awarding lower-value contracts of shorter duration to more providers, which is driving growth in smaller-sized deals.

“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 continues to forge ahead.

“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.”

EMEA recorded its best first-half in the last six years with ACV at $6.3 billion (£3.7 billion). The Americas “rebounded from a string of relatively weak” quarters, with its best quarterly performance and breaking through the $2 billion (£1.2 billion) ACV mark for the first time since the first quarter of 2013.

“Asia Pacific continued a comeback of its own, recording its second consecutive quarter of ACV at around $900 million (£526.3 million), a level double that of each of the prior three quarters,” the Index said.

“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 per cent from the first quarter.”