The EMEA sourcing market has seen strong growth in the third quarter, expanding by more than twenty percent on the previous quarter to a total contract value of over €3 billion, lifted in particular by strong demand in the German speaking countries. The outlook remains positive, with further growth forecasted for the sourcing market in the months to come.
Every quarter Information Services Group (ISG), a US-listed market intelligence and advisory services company, conducts research into the state of the sourcing industry. The firm’s latest analysis, covering Q3 2016, finds that annual contract value (ACV) in the EMEA (Europe, Middle East and Africa) region reached €3.1 billion, up 22% over the previous quarter and 10% year on year*.
Activity in EMEA was up by volume as well as value; the 494 contracts awarded in the year to date represent a 13% uplift, and set a record high for the region. Globally, the market echoed the EMEA results, with combined market ACV up 11% year on year as all regions reported double-digit growth. This growth was fuelled by steady gains in traditional sourcing, and record-high value in the fast-growing as-a-service segment, which, propelled by the movement of traditional services to the cloud, jumped 20% in the third quarter, and 41% in the year to date.
In the UK, EMEA’s most mature market, activity edged up 17% compared to the weak showing of 2015's third quarter. However, while traditional sourcing in the UK was lacklustre in both value and number of awards for the fifth consecutive quarter, the UK has embraced as-a-service sourcing, which is likely impacting its figures in areas where it has historically enjoyed success.
Much of EMEA’s growth can be attributed to a stand-out third quarter in DACH (Germany, Austria and Switzerland) – the 157 awards recorded in the first three quarters of the year mean the market has already exceeded its best-ever full year of contract activity, and its €2.2 billion ACV is up 44% compared with 2015. DACH’s positive trajectory through the year to date reflects, according to the authors, the strength of traditional outsourcing in the region, as the market holds back somewhat from full adoption of as-a-service propositions.
Elsewhere, the Nordics, France and Southern Europe all saw ACV increases. The French market showed strength in both volume and value, with ACV and the number of contracts up by more than 50% each, compared to their muted performance in 2015. The Nordics sub-region saw its performance return to traditional levels following a similarly muted 2015 result.
Commenting on the findings, John Keppel, partner and president of ISG, says: “While DACH’s stand-out performance and the renewed activity in France and the Nordics have offset quiet traditional sourcing activity in the UK, it is encouraging to see the UK market embrace the as-a-service culture so enthusiastically.”
By industry, several sectors in EMEA showed strength. Manufacturing led the way with ACV exceeding €1.5 billion in the year to date, up 116% over last year. Moving beyond its impressive performance in the first half of this year, the sector is enjoying a surge in demand, with a 62% increase in contracts.
Other industries posting positive results include Business Services which, year on year, enjoyed a 69% jump in ACV, and Retail which was up by 50%. In contrast, Transportation value fell 25% to its lowest ACV year to date since 2009, and Financial Services dipped 6% year to date, compared to the same period in 2015. The Financial Services sector continues to be weighed down by macroeconomic concerns and prolonged low interest rates. However, the ongoing rollout of digital initiatives should see the sector pull back to achieve mid- to long-term growth.
Looking ahead, Keppel says that EMEA’s positive results have led ISG to revise its forecast for the full year. “Rather than anticipating a flat market for 2016, we now anticipate gains and a potential record for the as-a-service market globally.”
* ISG’s analysis measures commercial outsourcing contracts with an annual contract value of €4 million or more.