ISG Index™: Sourcing Market Grows 56 Percent in EMEA
Third-quarter combined ACV reaches €3.3 billion
As-a-Service contracting accelerates in the region, up 56 percent to €1.3 billion
Traditional sourcing ACV rises 55 percent, driven by strong contract activity in DACH and the Nordics
UK traditional sourcing values plummet as Brexit approaches
LONDON, Oct. 18, 2018 /PRNewswire/ -- The sourcing market in Europe, Middle East and Africa (EMEA) grew significantly in the third quarter, propelled by robust demand for both traditional and as-a-service sourcing, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.
The EMEA ISG Index™, which measures commercial outsourcing contracts with an annual contract value (ACV) of €4 million or more, shows the EMEA market posted combined third-quarter ACV of €3.3 billion, up 56 percent from the prior year. Traditional sourcing grew 55 percent, to €2 billion, while as-a-service ACV reached €1.3 billion, up 56 percent. Year-to-date, the two components of as-a-service – Infrastructure-as-a-Service (IaaS) and Software-as-a-Service (SaaS) – grew faster in EMEA than in any other region, reaching record highs of €2.7 billion and €0.9 billion, respectively.
Globally, third-quarter ACV for the combined market grew 19 percent, to €9.4 billion. Demand for traditional sourcing stagnated as global ACV remained flat at €4.8 billion. As-a-service ACV, however, continued to reach new heights, up 47 percent, to €4.6 billion.
Steve Hall, partner and president of ISG, said: "It is encouraging to see EMEA take a leap forward in the adoption of cloud-based solutions. Previously lagging the rest of the world, this region appears to be catching up – demonstrating in the last quarter the highest year-over-year growth rates for IaaS and SaaS among the three regions in our ISG Index."
Sector Breakdown
The impact of as-a-service contracting was apparent across EMEA, with all sectors demonstrating strong year-to-date growth.
Combined ACV in EMEA's largest sector, Banking, Financial Services and Insurance (BFSI), was up 30 percent year-to-date, driven by a 61 percent increase in as-a-service and a rise of 24 percent in traditional sourcing values.
The Manufacturing sector also posted solid growth, with combined ACV up 15 percent year-to-date. Strong as-a-service activity fueled the growth, up 39 percent on the prior year, with traditional sourcing up by a more modest 5 percent.
The Business Services sector grew 27 percent year-to-date. As-a-service ACV increased 63 percent but traditional sourcing values in the sector flagged, down 17 percent compared with the prior year.
The Retail sector continues to show strength, with 78 percent growth in combined ACV, driven by increased as-a-service activity and a considerable uptick in traditional sourcing values.
Market Insights
Traditional sourcing ACV in the United Kingdom reached €581 million in the third quarter, an increase of 40 percent year-on-year, albeit on a favorable compare with the third quarter of 2017, which was the weakest in more than a decade. Traditional sourcing values in the UK have fallen since the Brexit referendum in June 2016 and remain consistently below historical levels. Prior to the Brexit vote, the UK market achieved traditional sourcing ACV of €800 million-plus in two to three quarters each year. Since the referendum, the UK has seen just one such quarter. Although the number of UK contract signings has increased steadily, deals are smaller. Some of this lost value has been replaced by the increase in as-a-service activity, but the UK is the only country in EMEA to show a sustained reduction in traditional sourcing ACV.
The DACH market posted a robust third quarter, with traditional sourcing ACV of €712 million, up more than 160 percent compared with the notably weak third quarter of 2017. The strong second and third quarters have helped the DACH market to rally, compensating for the weak start to 2018 and resulting in year-to-date growth of 8 percent.
Third-quarter traditional sourcing ACV in France declined modestly, by 8 percent, compared with the notably strong third quarter of 2017. The number of contract signings also fell, by 36 percent. Although year-to-date ACV is down compared with 2017's stand-out performance, it is in line with prior periods.
Forecast
Steve Hall concluded, "The traditional sourcing market in the UK is showing clear signs of caution as the Brexit deadline approaches. Despite a high level of activity in the market, deal sizes are smaller. However, the strong shift to as-a-service sourcing indicates that UK companies, and others across Europe, are recognizing the value in remaining agile to help them adapt to uncertain political and economic factors. Despite that uncertainty, we expect EMEA to contribute to the full-year growth we forecast for the global industry: IaaS up more than 30 percent, including more than 45 percent growth in public cloud; SaaS up 17 percent, and traditional sourcing up in the range of 4 percent."
About the ISG Index™
Now in its 64th consecutive quarter, the ISG Index™ provides a quarterly review of the latest sourcing industry data and trends for clients, providers, analysts and the media. For more than 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. In 2016, the ISG Index™ was expanded to include coverage of the fast-growing as-a-service market, measuring the significant impact cloud-based services are having on digital business transformation. ISG also provides ongoing analysis of automation and other digital technologies in its quarterly ISG Index™ presentations.
The Q3 2018 EMEA ISG Index™ was presented during a conference call and webcast for media and analysts on October 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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