EMEA Sourcing Market Fueled by Growing Demand for As-a-Service Technologies
Fourth-quarter combined ACV rises 27 percent sequentially to €3 billion, though flat compared with prior year
Region's as-a-service ACV climbs to record €1.1 billion in 4Q
Full-year combined EMEA ACV reaches €12.2 billion, up 3 percent on prior year.
LONDON, Jan. 17, 2018 /PRNewswire/ -- The EMEA sourcing market rebounded in the final quarter of 2017, with double-digit growth in both traditional and as-a-service contracting values over the previous quarter, according to the findings of the 4Q17 EMEA ISG Index™ released by Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.
Data from the EMEA ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of €4 million or more, reveal the EMEA market, which fell sharply in the third quarter after starting the year strongly, rebounded in the fourth quarter, up 27 percent sequentially. Year-over-year, however, EMEA, was flat with the prior year, with combined fourth-quarter ACV of €3 billion in 2017. Traditional sourcing, at €1.9 billion, was down 11 percent versus the prior year, while as-a-service sourcing, at a record €1.1 billion for the region, was up 27 percent.
For the full year, EMEA generated €12.2 billion in ACV, up 3 percent against 2016. Traditional sourcing ACV of €8.3 billion was down 8 percent, but as-a-service sourcing soared 41 percent, to €3.9 billion, as demand for cloud-based services accelerated across the region.
The rise of as-a-service sourcing was driven by demand for Infrastructure-as-a-Service (IaaS). While Software-as-a-Service (SaaS) ACV of €900 million was flat for the year, IaaS ACV soared 58 percent versus the prior year, reaching €3 billion. In contrast, traditional sourcing ACV declined for the fourth consecutive year, despite a slight increase in the number of contracts. Although ITO values, at €6.5 billion, remained steady, BPO ACV in the region fell to €1.8 billion, its lowest level in a decade.
Globally, the market also saw a strong final quarter, with ACV for the combined market establishing a new record at €34.6 billion. Global trends reflect those in EMEA, with newer technologies continuing to gain momentum. As-a-service continued to reach new highs on a global scale, overtaking traditional sourcing in the Americas and Asia Pacific in the fourth quarter, as businesses spend more on cloud-based technology to drive digital transformation.
Market Insights
Looking at traditional sourcing by geography, 2017 saw a mix of performance across the region.
Despite uncertainty around Brexit, the UK saw sourcing activity and ACV grow in 2017. This follows the broader trend of organizations entering into higher numbers of smaller-value contracts, as they look to take a more agile approach to sourcing. The 206 contracts and €3.2 billion in ACV were both up 18 percent year on year, albeit on a soft compare with 2016, the UK's weakest year in a decade.
France, despite a dip in the fourth quarter of 2017, posted annual ACV growth of 8 percent. The number of contract awards, although down very slightly on the previous year, remains strong, at 62. In contrast, Southern Europe ACV plummeted more than 70 percent to its lowest level in five years.
With fewer large deal awards, ACV in DACH fell 16 percent in 2017. The 165 contracts signed was also down compared with the previous year, by 13 percent. The continuing uncertainty following the elections in Germany pulled the market down in the second half of 2017.
An absence of large deals in the Nordics region resulted in a decline in ACV of 18 percent, despite contract numbers remaining steady.
Sector Breakdown
All industry sectors in EMEA demonstrated growth in as-a-service ACV in 2017, while traditional sourcing performance varied.
Financial Services dominated in EMEA during 2017. Combined ACV in the sector reached €3.4 billion, an increase of 21 percent compared with 2016 levels. As-a-service ACV hit €700 million in Financial Services, a year-on-year increase of 40 percent.
The Business Services sector mirrored the performance of as-a-service contracting in Financial Services, also recording AVC of €700 million and a 40 percent increase compared with the prior year.
In contrast, Manufacturing's combined ACV fell 21 percent in 2017, pulled down by a steep decline in traditional sourcing, and despite a 50 percent increase in as-a-service values. Recent trends indicate significant spending on supply chain optimization in the manufacturing sector. Connected devices supported by edge computing, IoT, and data analytics will increasingly become a major focus in the manufacturing sector.
Forecast
Steven Hall, partner and president, ISG, said: "Despite a dip in the third quarter of 2017, the market recovered in the final quarter and demonstrated steady overall performance for the year. It is especially heartening to see the adoption of cloud-based services accelerate across the region, following a slow start in previous years. European businesses are seeing the potential of new technologies to help them on their digital transformation journeys, while reducing costs and improving agility. Macroeconomic uncertainty across Europe makes the business of predictions tricky. Nonetheless, the trend towards as-a-service is one we can expect to see accelerating over the next 12 months, with consistent growth of 20 percent or higher for the as-a-service market."
About the ISG Index™
Now in its 61st consecutive quarter, the ISG Index™ provides a quarterly review of the latest sourcing industry data and trends for clients, service providers, analysts and the media. For 15 years, 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 4Q17 EMEA ISG Index™ was presented during a conference call and webcast for media and analysts on January 15, 2018.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 700 clients, including 75 of the top 100 enterprises in the world, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; technology strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry's most comprehensive marketplace data. For more information, visit www.isg-one.com.
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