New scope up 30 percent in first half of year, returning to pre-recession levels on higher demand in Netherlands, United Kingdom, growing adoption in France

TPI, an Information Services Group company and the leading independent sourcing data and advisory firm in the world, today released data showing the commercial outsourcing market in Europe, the Middle East and Africa experienced a healthy increase in total contract value (TCV) in the second quarter of 2011 despite continued movement away from large contract awards globally.

The 2Q11 EMEA TPI Index, which measures contracts valued at €20 million or more, recorded TCV in the region of €7.6 billion, a year-over-year increase of 13 percent. EMEA accounted for more than half of the TCV the global market awarded during the quarter and nearly twice the amount recorded in the Americas.

Globally, TCV dropped 18 percent over the second quarter of 2010 to just over €13 billion. The decrease is attributable to the awarding of fewer mega-deals – those contracts worth over €800 million – and other large contracts. Clients signed just four mega-deals in the first half of 2011 this year, compared to six in the same period a year ago, and three of these were in EMEA.

“EMEA was a standout for the global outsourcing market during the second quarter, but it was not immune to the decline in large contracts,” said Duncan Aitchison, Partner & President, EMEA, TPI. “While the number of contracts signed in the region in the first six months of 2011 jumped 23 percent, TCV grew by just 10 percent. We believe this is partly the result of increased multi-sourcing and also a sign that companies were somewhat hesitant to commit to the larger investment of these sizeable contracts.”

Now in its 35th consecutive quarter, the TPI Index provides a quarterly snapshot of the sourcing industry for clients, service providers, analysts and the media. It is the industry’s authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.

The Index found that the TCV of IT outsourcing (ITO) declined in EMEA in the first half of this year compared to the same period in 2010, but the region awarded 13 percent more contracts, many of which brought new-scope value to the market. By contrast, the business process outsourcing (BPO) market grew sharply, with 58 contracts recorded in EMEA, the highest ever in a first half, and TCV up 132 percent to almost €6 billion.

Compared to its record-high levels in EMEA last year, restructuring TCV declined by 29 percent in the first half of 2011, reverting to its historically normal level of activity. In the same period, new-scope TCV increased by 30 percent, returning to pre-recession levels of 2007. Increased demand in the Netherlands and United Kingdom and the continuing adoption of the outsourcing model in France particularly drove this growth.

“During the recession, we saw companies rush to restructure their existing contracts in an effort to reduce costs quickly,” Aitchison said. “We are now seeing a return to new-scope contracting as clients seek quality improvement and access to skills as well as the cost savings, which were the primary focus in previous years.”

Continued Aitchison: “Although market growth so far this year has been somewhat patchy, we believe that the second half of the year looks more promising.”

The Index also showed the changing face of public sector outsourcing activity in EMEA in 2011. Historically, the UK has been the leading market for this activity, accounting for 86 percent of the region’s public-sector TCV from 2005 to 2010. This year, that figure has dropped to 71 percent as other countries have grown their share of the market.

“We have actually seen the pace of UK public sector activity increase in 2011, but contract values have declined,” Aitchison said. “In an effort to meet near-term savings targets, public sector organisations seem to be pursuing outsourcing strategies which offer best-of-breed solutions that can be implemented quickly rather than large-scale change initiatives.”