The annual value of outsourcing deals in the EMEA region (Europe, Middle East and Africa) rose almost 4 per cent in the first quarter of 2020, but would have grown at a higher rate had the impact of Covid-19 not hit the market in March.
The latest state-of-the-industry report from global technology research and advisory firm Information Services Group (ISG) shows how the demand for outsourced services shrank from March onwards.
The EMEA ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of €5 million (£4 million) or more, shows combined market ACV (including both as-a-service and managed services) in EMEA increased by 3.8 per cent year on year to €4.5 billion (£3.9 billion).
EMEA was on track to deliver 7-9 per cent growth, but demand was curtailed by the coronavirus pandemic, which first hit the region in early March. Sequentially, EMEA was down 6 per cent in the first quarter compared with its record fourth-quarter ACV in 2019.
In Q1, managed services ACV was up 6 per cent year on year, to €2.7 billion (£2.3 billion), fuelled by strong demand for information technology outsourcing – up 23 per cent to €2.4 billion (£2.1 billion).
Globally, 85 per cent of the first quarter’s managed services deals were awarded in January and February. The ISG Index shows a pandemic-related drop-off in activity beginning in early March across Europe (earlier than in the Americas, where this drop-off began near the end of March).
ISG predicts that global ACV for managed services deals will drop 17 per cent sequentially in Q2 because of the pandemic. This will be driven by weakness in key industries such as travel, transportation and hospitality, CPG and retail, and financial services.
Steve Hall, president of ISG EMEA, said: “Firms that took their digital transformation seriously in the past couple of years will likely weather the Covid-19 storm better.”
He added: “They have better visibility into their supply chains. They’ve converted their stores to mini-distribution systems and are using strong B2C and analytics to maintain customer loyalty. Their mobile solutions mitigate the need for humans to seek service via contact centres, and their intelligent automation solutions minimise the number of employees required to transact. Those that didn’t make significant progress on their digital transformations will need to accelerate their digital investments now. By the second half of the year, managed services should rebound. Overall, 2020 managed services ACV likely will be off by 7 per cent. In the as-a-service space we see ACV being up 5 per cent sequentially in the second quarter and up 12 per cent for the full year.”