European companies hold back outsourcing amid recession fears

A huge fall in the value of managed services contracts has dragged European outsourcing spending down, despite a rise in spending on cloud computing contracts.

Spending on outsourcing contracts in total fell in the third quarter of this year, as fears of recession across the continent reduced technology investments, according to the findings from ISG’s outsourcing index, which monitors deals worth ₤3.9m or more.

Overall, the combined managed and cloud services spending in Europe was down 7% to ₤3.2bn in the third quarter of this year, compared with the same period last year – compared with the rest of the world, where the third quarter saw spending increase 13% year on year.

Spending on managed services in the quarter took a large hit, falling by ₤792m to ₤1.7bn from the previous quarter, some 31%, and 17% compared with the same quarter last year.

In contrast, total spending on cloud-based services increased 10% year over year, to reach ₤1.4bn.

The number of overall contracts signed in the quarter fell by 11% to its lowest level in over two years.

Steve Hall, partner and president, EMEA at ISG, said: “Political and trade issues are contributing to a mixed stance on technology spending, with enterprises largely split on investing for growth or leveraging technology for cost reduction through 2020.”

As well as a possible recession, businesses across the EMEA are also cautious due to Brexit and trade wars, said ISG.

“The biggest impact on the UK outsourcing market was that of Brexit-related uncertainty on the performance of the pound sterling, which means UK businesses may wait for the market to settle before deciding on a strategic direction,” said ISG.

ISG also revealed that businesses continue to invest in cloud-based services and digital transformation projects, with particularly high spending in the retail sector. A total of 62% of total retailer spending on outsourcing was on cloud services.

But while cloud service spending in Europe is showing a positive spending increase, at 10% in the third quarter, it still lags behind the Americas and Asia Pacific, where cloud service spending increased by 26% and 14% during that period.