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Outsourcing hit by Euro woes as contracts decline by 29%

Two reports released this week indicate that companies are becoming increasingly apathetic towards the role of outsourcing partners

The number of outsourcing contracts worth more than £15.5 million awarded across Europe, the Middle East and Africa (EMEA) has declined by 29 percent year-over-year, due to concerns over the Euro and macroeconomic uncertainty.

According to Information Services Group's (ISG) second quarter EMEA TPI Index, the total contract value (TCV) for these agreements reached £5.2 billion for the period, a drop of 21 percent from the second quarter of 2011 and an 11 percent drop from the first quarter of 2012.

The EMEA region also only awarded one 'mega-deal' (a contract with TCV of at least £622 million), which is down 67 percent year-over-year.

"Europe has had a notably sluggish start to the year," said Duncan Aitchison, EMEA partner at ISG.

"The shortfall in EMEA stems from a drop-off in the pace of smaller contract awards, as well as the absence of significant mega-deal activity."

The EMEA results are in stark contrast to other regions, as the Americas TCV of £5.05 billion was up six percent over the same quarter a year ago, while Asia Pacific TCV of £3.11 billion represented growth of 181 percent year-on-year.

The UK performed particularly badly with a TCV of £4.4 billion, which was down 12 percent year over year. France, Southern and Eastern Europe maintained their five-year averages.

KPMG has also released outsourcing statistics this week, based on 630 client-provider deals worth £14 billion, which indicate that UK companies will continue to maintain their contracts, but are becoming increasingly apathetic towards the agreements.

According to the data, 76 percent claim that they intend to continue outsourcing, but just 19 percent are 'certain to outsource more'. This has fallen from 25 percent from just two years ago.

Furthermore, 46 percent expressed indifference when asked if they would recommend their service provider and 12 percent expressed dissatisfaction. Some 45 percent indicated that this was because service providers are failing to actively identify opportunities for innovation.

Also, three in 10 claimed that some agreements are not met on time or to budget.

"Outsourcing looks set to remain a large part of IT spend in the UK, but suppliers should not take it for granted that clients will remain willing to put their hands in their pockets," says Lee Ayling, partner in KPMG's shared services and outsourcing advisory practice.

"Up to this point, continued spend has been fuelled by a need to respond tactically to the difficulties brought about by tough economic circumstances, but complacency is not an option."

He added: "The survey highlights that buyers are now using multiple service providers where they didn't before - hence service providers have to respond to shifting preferences for how IT is delivered if the current trend is set to continue."


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