UK Outsourcing Contracts Plunge By 27 Percent As Brexit Looms

Conventional outsourcing plummeted by 27 percent in the UK last year to 2.5 billion euros ($2.18bn), as companies face uncertainty over the UK’s departure from the European Union,  found Information Services Group (ISG) in newly published figures.

Contracts grew by 5 percent in the UK, suggesting a larger volume of lower-value deals.

ISG said that prior to the Brexit vote in June 2016 the UK averaged three 800m-euro quarters per year in conventional outsourcing.

“Since the vote, only one quarter – the first quarter of 2017, which included the signing of some exceptionally large mega-deals – reached that mark,” ISG said in a statement.

Conventional contracts sag

The Germany-Austria-Switzerland area saw a 4 percent drop in conventional outsourcing, which doesn’t involve cloud services, with a 19 percent drop in contract signings, ISG said.

It said the DACH-area declines were due to slowing economies, but also to the risk posed to Germany’s economy by Brexit.

At the same time, the UK and the Germany-Austria-Switzerland region both saw increasing investments in new technologies and as-a-service contracting to meet consumer demand for new services and channels, ISG said.

France’s showed a 3 percent slowdown in conventional outsourcing, with deals’ annual value dropping to 640m euros, and a 13 percent drop in contract volume, in part due to unsettling economic and political factors, ISG said.

It was another story in the Nordic region, with conventional outsourcing up 20 percent to 1.1bn euros and the number of contracts growing by 14 percent.

Smaller EMEA markets also showed conventional outsourcing gains in Southern Europe, Africa, the Middle East, Russia and Eastern Europe.

Cloud boom

Cloud-based as-a-service contracting showed strong growth across all sectors, while only financial services, retail, manufacturing and healthcare showed growth in conventional outsourcing.

Retail saw the highets combined growth of any sector across EMEA last year, with annual contract values up by 71 percent, powered by conventional outsourcing, which gained 125 percent in the sector.

ISG’s index, which measures deals of 4m euros in value or more, showed an overall EMEA fourth-quarter rise of 3bn euros, or 5 percent, over the same quarter the previous year.

That rise was fuelled by as-a-service contracting, which grew by 44 percent year-on-year to 1.3bn euros, driven by demand for enterprise digital transformation.

Infrastructure-as-a-Service deals stood at 960m euros for the quarter, while Software-as-a-Service grew to 331m euros, even as conventional outsourcing dropped by 12 percent year-on-year to 1.7bn euros.

Worldwide growth

For the full year, EMEA reached 12.9bn euros, up 9 percent on 2017, with conventional outsourcing at 8bn euros, down 6 percent, and as-a-service contracts growing by 48 percent to 4.9bn euros.

As-a-service sourcing accounted for 38 percent of EMEA’s total contract value, largely driven by SaaS and IaaS, both of which grew by more than 40 percent last year.

Worldwide, outsourcing grew by 18 percent to 9.8bn euros in the fourth quarter, with as-a-service contracts gorwing by 43 perent year-on-year and conventional rising by 2 percent.

“Despite ongoing political and economic uncertainty in Europe and resulting business caution, companies are making significant investment in digital technologies to improve their ability to compete and to engage with their customers,” said ISG president Steve Hall. “This is a clear testament that the tailwinds of digital transformation are stronger than the headwinds of political and economic issues.”