EMEA Sourcing Market Reaches Record High in Q4: ISG Index™

Shrugging off the effects of the pandemic, the Europe, Middle East and Africa (EMEA) sourcing market delivered its best quarterly performance ever, with record demand for cloud-based services and a resurgence in managed services, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The EMEA ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of €5 million (£4 million) or more, shows ACV for the combined market, which includes both as-a-service and managed services, reached a record €5.1 billion (£4.6 billion), up 18 percent, in the fourth quarter.

Cloud-based as-a-service ACV reached a quarterly record of €1.8 billion (£1.6 billion), up 25 percent over the prior year, as enterprises continue to move more work to the cloud. Infrastructure-as-a-Service (IaaS) climbed 34 percent, to €1.3 billion (£1.2 billion), while software-as-a-service (SaaS) rose 5 percent, to €479 million (£426 million).

On the strength of five mega-deals in EMEA, including contracts with Siemens and Daimler in the DACH region, managed services rose 14 percent, to €3.3 billion (£3.0 billion), with IT outsourcing (ITO) soaring 55 percent, to €3.0 billion (£2.7 billion). Business process outsourcing (BPO), meanwhile, declined 66 percent, to €331 million (£295 million), the only blemish on an otherwise stellar quarter.

“EMEA produced its best quarter ever, with combined ACV up 35 percent compared with the third quarter, led by five managed services mega-deals in the region—including two deals in the DACH manufacturing sector with Siemens and Daimler,” said Steve Hall, president of ISG. “Cloud-based as-a-service bounced back from a midyear slump to produce a record quarter.”

Full-Year Performance

For the full year of 2020, combined ACV reached a record €17.0 billion (£15.1 billion), up 7 percent, boosted by an as-a-service market that rose 15 percent, to a record €6.9 billion (£6.1 billion). Managed services grew 2 percent, to €10.0 billion (£8.9 billion), despite a pandemic-induced slump in the second quarter.

Within the managed services segment, full-year ITO ACV rose 21 percent, to €8.7 billion (£7.7 billion), with several large deals that closed in the fourth quarter boosting annual growth. Among new-scope contracts, Infosys won an eight-year mega-deal with Daimler for an infrastructure overhaul, and Wipro sealed a mega-deal with German wholesaler Metro AG to launch a digital innovation hub in Düsseldorf that will also support other customers in the region.

BPO ACV, however, fell precipitously, down 50 percent, to €1.3 billion (£1.2 billion), against a strong 2019 performance. As in the other regions, Facilities Management and Contact Centers faltered in EMEA.

In cloud-based services, IaaS rose 23 percent, to €5.1 billion (£4.5 billion), as hyperscalers battle for market supremacy. Among the larger deals, Nokia secured a five-year contract with Google to replace IT infrastructure at contact centers with Google Cloud. Meanwhile, AWS inked a five-year agreement with Standard Chartered Bank, and Microsoft Azure signed a seven-year cloud services deal with Deutsche Telekom.

In the SaaS segment, ACV was off 3 percent, to €1.8 billion (£1.6 billion), despite a number of sizeable deals in this space, including SAP’s contract with Rabobank for S/4HANA, Oracle’s a deal with Aegon for Fusion Cloud ERP, and Salesforce’s agreement with Bentley Motors in the U.K.

Market Insights

The DACH region produced EMEA’s strongest growth in managed services in the fourth quarter, up 90 percent, to €1.7 billion (£1.5 billion), due to the large contract awards made by Siemens and Daimler, as well as TCS’s deal with Postbank Systems.

The U.K. managed services market, meanwhile, declined 32 percent in the fourth quarter, to €704 (£626 million), still a strong result, but down against a tough comparison with a strong fourth quarter in 2019. Among the notable deals in this market was TCS’s multiyear services contract with Prudential Financial unit Pramerica Systems Ireland.

Like DACH, France also nearly doubled its managed services ACV in the quarter, up 83 percent, to €386 million (£343 million), its best quarter since the fourth quarter of 2011. The result was driven by a significant number of mid-sized transaction awards.

2021 Global Forecast

ISG is forecasting the market for cloud-based services will grow 20 percent globally in 2021, and the market for managed services will grow 3 percent.

About the ISG Index™

The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 73 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities and the media. In 2016, the ISG Index was expanded to include coverage of the fast-growing as-a-service market, measuring the significant impact cloud-based services are having on digital business transformation. ISG also provides ongoing analysis of automation and other digital technologies in its quarterly ISG Index presentations.

For more information about the ISG Index, visit this webpage.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 700 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.

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Contact information

Press Contacts:
Will Thoretz, ISG
+1 203 517 3119
will.thoretz@isg-one.com

Kate Hartley, Carrot Communications for ISG
+44 7714065233
kate.hartley@carrotcomms.co.uk