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Asia Pacific Sees Rise in Second-Half Contracts, But Value is Flat with First Half: ISG Outsourcing Index

2013 consistent with 2010-2011, but down sharply from standout 2012;

BANGALORE, India, Feb. 10, 2014 /PRNewswire/ -- Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company, said today the number of outsourcing contracts awarded in the Asia Pacific region rose in the second half of 2013, but annual contract value remained flat with the first half, suggesting a trend toward smaller deals, a pattern consistent with activity globally and in other regions.

According to the ISG Outsourcing Index for Asia Pacific, which measures commercial contracts with an annual contract value (ACV) of $5 million or more, ACV totaled $1 billion for the second half, same as the $1 billion recorded in the first half.  Full-year ACV of $2 billion was down 80 percent from the standout year of 2012, but consistent with prior years.

Similarly, the total number of contracts for the year, 126, was down from 2012 but broadly in line with the volume of contracts in the 2009-2011 period.  The volume of activity did, however, pick up in the second half of 2013, as the number of deals rose 7 percent compared with the first six months of the year.

The steep decline in the ACV was due principally to a sharp drop in the number of large-scale contracts awarded in 2013.  Last year, only three contracts valued at between $40 million and $99 million were awarded, compared with 12 in 2012.  Most Asia Pacific contracts fell into the $5-million-to-$39-million range, but the number of those contracts, like that of the large-scale deals, was down for the year.

"The year 2012 was the best ever for outsourcing in Asia Pacific, but it looks now to be an aberration, rather than the beginning of a new era," said Sid Pai, partner and president, ISG Asia Pacific.  "Although 2013 pales in comparison, it was more truly representative of the long-term trend in the region.  Indeed, the value of both mega deals and sub-$40 million contracts in 2013 were in line with their five-year averages."

Pai pointed out that the number of contracts awarded in the last decade has grown by 50 percent, while ACV has remained remarkably consistent.  "Clearly, deal value is getting smaller, as clients take advantage of lower service costs and increased competition, while moving toward multi-sourcing environments.  The work that was awarded to a single vendor in the past is now being split up among multiple service providers offering specialized capabilities."

From an industry standpoint, the best performing sectors were Travel, Transport and Leisure and Healthcare and Pharmaceuticals, both of which saw an increase in ACV for the year that put them near their five-year averages.  On the other hand, Asia Pacific's historically strongest sector, Media and Telecommunications, had its worst year ever, down almost 80 percent from 2012, due to a sharp falloff in mega relationships.  Financial Services also was down, as the number of contracts signed dropped to its lowest level since 2008, as was Manufacturing, even though the sector returned to historical levels.

Among the sub-regions, the only one to show growth was Japan.  Although contract numbers declined slightly, ACV in Japan reached $380 million, its highest level since 2007.

India, the region's largest sub-region, was also its biggest underperformer, as ACV tumbled from $1.4 billion in 2012 to only $400 million last year, with the large business process outsourcing (BPO) contracts of 2012 essentially disappearing.  Contract counts also fell to a six-year low, as economic and political uncertainties caused companies to delay outsourcing decisions until after the April elections.

Election considerations also were a major factor in the Australia-New Zealand sub-region, where ACV declined for a second consecutive year despite a steady volume of deals.  Now in the slower summer months, soft conditions should persistent there through mid-2014.

In terms of deal scope, information technology outsourcing (ITO) saw a 24 percent jump in ACV in the second half, compared with the first six months of the year.  That strong performance meant full-year ACV was down only 5 percent, and within historical range.  Correspondingly, activity in the second half was at all-time high for a half-year period, with 56 ITO contracts awarded, up 47 percent.  Infrastructure and Network Services were the big drivers.

The story was quite different on the BPO side, which saw a steep drop in value that accounted for the overall decline in Asia Pacific.  Less than $100 million in ACV was awarded in the second half, the lowest award value since 2005.

For the full year, ACV in BPO was down almost 80 percent and contract counts fell 42 percent, as the lack of large contracts, fewer and smaller deals overall, and the virtual disappearance of research-and-development and knowledge-process outsourcing work after a record 2012 combined to crater the market.

The longer-term picture looks brighter than the 2013 numbers would suggest, said Pai.  He noted that the region's annualized revenue from active outsourcing contracts – revenue now in the pipeline from both current-year and previous-year deals – has continued to rise, with a five-year compound annual growth rate (CAGR) of 4 percent.  The number of active contracts over that same period has risen at a CAGR of 10 percent.

"This measure smoothes out the bumpiness of the annual business cycle and reveals the true, long-term growth potential of this region," said Pai.

Now in its 45th consecutive quarter, the ISG Outsourcing Index (formerly the TPI Index) provides a quarterly review of the latest sourcing industry data and trends for clients, service providers, analysts and the media.  For more than a decade, it has been the authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider performance.

The Second-Half Asia Pacific ISG Outsourcing Index was presented during a conference call and webcast for media and analysts today.  To listen to an audio replay of the call and view presentation slides, please visit

About Information Services Group

Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries.

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