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ISG blames UK general election for fall in outsourcing value

A lull in UK outsourcing activity in the run-up to the election caused a 25% drop in spending across the Emea region in Q1 2015, claims ISG

Karl Flinders
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Published: 20 Apr 2015 11:30

A lull in UK outsourcing activity in the run-up to the May general election caused a 25% reduction in spending across Europe Middle East and Africa (Emea) in the first quarter of 2015.

In Emea – the world's largest outsourcing market – there were 128 contracts signed, valued at $2.4bn, according to the latest figures from ISG. Both these were 25% lower than the same period in 2014.

A drop in outsourcing in the UK – which dominates the area's outsourcing market – had a big impact on the Emea and global figures. “The drop was due mainly to a drop in sourcing business in the UK, a lull most likely caused by the run-up to the next election,” said ISG.

Global outsourcing slowed as contract value reduced in a price war among suppliers, said ISG.

ISG’s Outsourcing Index – which measures commercial outsourcing contracts with annual contract value (ACV) of $5m or more – show first-quarter contract value fell 18%, to $5.1bn, well below the average for first quarters since 2006 of $6bn.

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ISG predicts spur in competition

There were 305 contracts signed globally in the first quarter, which was 7% less than last year.

"The slow pace of the quarter is not a surprise, based on the activity we noted at year's end, but we don't view it as a portent of things to come," said John Keppel, president of ISG.

"What goes up must come down, especially against the strength of last quarter and the vigorous start the industry had in the first quarter of 2014. Across markets this quarter, we found examples of value increasingly being challenged while volume remained strong as clients sought out great deals in a buyer's market."

ISG expects new technologies and delivery models to spur competition and falling prices not seen since the early 2000s. "While we are used to the ever-present competitive dynamics of the sourcing marketplace, even by our own industry's standards we are currently witnessing some marked shifts in pricing across a number of areas as the compounded impacts of automation, robotics and cloud (ARC) take hold," said Keppel. 

"The unprecedented change brought about by ARC and technology innovation is creating substantial opportunity – but also substantial risk.”

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