Outsourcing market gravitates towards smaller deals

Continued rise in bite-sized deals favouring niche providers, says ISG

Small, niche providers are prospering as the global outsourcing market continues to gravitate towards bite-sized deals, according to analyst ISG.

ISG, whose index measures commercial outsourcing contracts with annual contract value (ACV) of $5m or more, recorded a 20 per cent surge in deal volumes in Q3 as enterprises moved towards smaller contracts.

Some 344 contracts were inked in Q3, up a fifth on the same quarter in 2014 but down from the record 448 contracts signed in Q2, ISG said. The ACV of these contracts stood at $5.6bn, flat on the previous year, it added, with IT outsourcing generating $3.6bn of the total and business process outsourcing contributing the rest.

For 2015 as a whole, deal volumes have risen eight per cent to a record high of 1,094, despite ACV shrinking 11 per cent to $16.8bn. There have only been 14 ‘mega-relationships' involving contracts valued at more than $100m annually so far this year - including five in Q3 - the lowest in the last decade, ISG said.

"The market trend is continuing toward smaller deals, as enterprises increasingly buy specialised services from smaller, niche providers, and avoid getting locked into big, long-term contracts to maintain the flexibility they need to take advantage of fast-changing technologies, lower pricing and evolving operating models," said John Keppel, president and partner of ISG.

EMEA registered a seven per cent rise in contracts during the quarter to 139, with the total ACV standing at $2.7bn.

The UK mirrored the global pattern as deal volumes here clambered 35 per cent year on year but the ACV slipped two per cent.