EMEA saw a fall in the total value of outsourcing contracts of €20m (£16.4bn) or more signed in Q1 to €6.9bn, down 53 per cent from the previous quarter and down 32 per cent from the year-ago period, according to the TPI Index.
Duncan Aitchison, partner and president of ISG North Europe, which produces the quarterly market index, said the Q1 collapse followed the strongest half-year and full-year results the outsourcing industry had seen for a decade.
"However, we expect outsourcing activity and total contract value to pick up in the second half of 2012 and project full-year results to be in line with historical norms," he added.
Aitchison also said that EMEA awarded no mega-deals (those contracts with total value of at least €800m) in the first quarter for the first time since 2009, and only the fifth time in the past decade. However, contracts for more than €80m a year fell within historical norms – indicating a shift in buying behaviour towards shorter agreement periods.
In early 2006 and early 2010, the outsourcing market experienced a similar pause in activity following two consecutive strong quarters, he added. In EMEA, the current hangover is likely compounded by ongoing eurozone uncertainty.
"In the UK, the pause in contracting caused total contract value to fall to €2.5bn in the first quarter, a significant year-on-year and sequential decline," noted Aitchison. "By region, the Americas turned in the best quarterly performance: flat year on year and up eight per cent sequentially."
Business process outsourcing declined 42 per cent in value terms and IT outsourcing also declined. Both areas performed strongly in Q4 2011.
"[However] the continued appetite for BPO is clear from the number of contracts awarded in EMEA in the first quarter, which increased by 26 per cent," Aitchison said. "We believe restructurings will continue to make up a large part of [overall EMEA] outsourcing activity as clients and service providers increasingly favour the greater flexibility of shorter-term contracts."
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