Out-Law / Your Daily Need-To-Know
The annual value of outsourcing contracts signed globally in 2019 is expected to exceed $50 billion as organisations seek to automate processes and access cloud-based services, according to new research.
In its latest outsourcing index, Information Services Group (ISG) revealed that the annual value of outsourcing contracts finalised in 2018 totalled $47.8bn, up 18% on the year before. ISG measures commercial outsourcing contracts with annual contract value of $5 million or more.
Much of the growth came in the 'as-a-service' market, where providers offer IT services or infrastructure to customers on an on-demand basis. Whereas the traditional outsourcing market grew a modest 2% in terms of annual contract value in 2018, to a total of $26bn, the rise in popularity of the as-a-service model continued, with a 43% in annual contract value to $21.8bn recorded in the year.
ISG predicted that the as-a-service market will grow by a further 25% in 2019, with growth in the traditional sourcing market estimated to be 4.5%.
According to ISG's figures, however, there were significant differences in the performance of the outsourcing market across different parts of the world.
The world's largest commercial sourcing market by region is the Americas. The annual value of outsourcing contracts agreed in 2018 in the region alone was $25bn, which was up 21% on the previous year. In Asia Pacific, the sourcing market grew 30% in 2018 to $6.7bn, as organisations become more comfortable in adopting cloud computing services, ISG said.
Europe, the Middle East and Africa (EMEA) saw a 9% rise in the growth of the outsourcing market last year to $16bn, but that performance was stunted by a 27% fall in the value of annual contracts for traditional sourcing in the UK, which ISG said is linked to Brexit.
"The traditional sourcing market in the UK has slumped since the Brexit vote in June 2016," ISG said in a statement. "Prior to the vote, the UK averaged three €800-million quarters for traditional sourcing per year. Since the vote, only one quarter – the first quarter of 2017, which included the signing of some exceptionally large mega-deals – reached that mark."
IT contracts expert Simon Colvin of Pinsent Masons, the law firm behind Out-Law.com, said: "The sourcing market in the UK is challenging, but as the market changes with data becoming the heart of so many processes and business models, there remain significant opportunities. Whilst there is a move away from traditional sourcing arrangements, many organisations will be able to benefit with focus on new technologies, such as AI and machine learning, robotic process automation, and the changing sourcing landscape with 'as-a-service', to move to the next generation of sourcing."
"Understanding use of data, the new business models for ownership, exploitation and custodianship will, however, be important," he said.
ISG also reported differences in the performance of outsourcing markets in different sectors of the EMEA economy.
While the traditional sourcing market in EMEA grew in the financial services, retail, manufacturing and the healthcare and pharmaceuticals sectors, it fell in others.
The annual value of all outsourcing contracts agreed in the retail sector in EMEA in 2018 grew 71%, compared with a 27% rise in the manufacturing sector, and 17% growth in the financial services sector.
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