Asia Pacific Outsourcing at Record Highs

Large ITO Contracts, Robust Manufacturing Sector Drive First-Half Performance

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Jul 31, 2014, 02:10 ET

BANGALORE, India, July 31, 2014 /PRNewswire/ -- Outsourcing activity in the Asia Pacific region reached record highs in the first half, hitting an all-time peak in contract awards and equaling the record for contract value in a half, according to data released today by Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company.

The ISG Outsourcing Index for Asia Pacific, which measures commercial outsourcing contracts with an annual contract value (ACV) of US$5 million or more, reported total ACV of US$1.9 billion in the first half, equaling the record first-half ACV in 2012, and nearly double the amount in the same period last year. Four mega-relationships (deals valued at US$100 million or more annually) were signed during the half, contributing to the strong performance, but overall contract volume, up 35 percent over last year, also was a factor.

"Larger contracts certainly boosted the region's performance in the first half, but we also saw good growth in the middle band of contract value, those between US$40 million and US$99 million of ACV," said Sid Pai, partner and president of ISG Asia Pacific. "At the half-year mark, Asia Pacific is already very close to 2013's full-year ACV. In a very healthy market, such as this, you expect to see a stepped-up level of new scope awards, and the region's numbers show that characteristic rise."

New-scope awards reached US$1.4 billion in ACV, while the annual value of restructured contracts, at nearly US$500 million, exceeded last year's performance and was above its prior four-half range.

Information technology outsourcing (ITO) in the region achieved its best half year ever by contract counts and ACV. The number of awards (74) soared by 95 percent year-on-year, while ACV of US$1.8 billion was more than double that of the same period in 2013. Boosted by the award of four mega-relationships, the annual value of ITO deals is already more than 10 percent ahead of 2013's full-year total.

The broader market activity for business process outsourcing, meanwhile, all but disappeared in the first half. With just seven contracts and US$100 million in ACV awarded, the BPO market continues to struggle since hitting a record high in 2012.

By industry, manufacturing was the standout sector in Asia Pacific, with US$740 million in ACV awarded, far above the previous half and ahead of the four-half average range. The ACV of telecommunications and media contracts also grew substantially for the half, well ahead of the prior period and four-half average. Both were boosted by mega-relationship awards.

In contrast, financial services ACV fell in the first half and finished well short of its previous four-half average. Although the number of contract awards remained steady, the lack of large deals in the sector pulled results down.

Among other sectors, travel, transport and leisure; energy; and healthcare and pharma all finished ahead of the previous half year and their prior four-half averages.

By market, Japan was the biggest gainer, with ACV of more than US$500 million, well above last year's second half and the average of the prior four half-year periods. Japan's growth was supported by some large deal awards and an increase in contracting activity, which contrasts sharply with its lackluster performance in the previous half.

Australia and New Zealand had a strong first half, with almost US$500 million in ACV, finishing comfortably ahead of its four-half average range. India, boosted by large deal awards, also rebounded in the first half.

In contrast, China, despite a rise in the number of contract awards in the first half, saw values decline modestly half-on-half. That said, the Chinese market remains buoyant and values continue to hover near the top of its four-half average range, Pai noted.

In addition to measuring the commercial outsourcing market, ISG examined the performance of the public sector market in Asia Pacific during the first half of 2014. Based on contract awards exceeding US$5 million in annual value, public sector ACV more than doubled in the period to US$2.3 billion, its highest ever, The increase was attributable to a number of large contracts, including one mega-relationship award.

"Asia Pacific's first half was especially strong," said Pai. "If the region delivers typical second-half ACV in the range of US$1 million to US$1.5 billion, that would suggest growth for the full year of around 50 percent, even if ACV comes in at the lower end of that range."

ISG presented the 1H 2014 Asia Pacific ISG Outsourcing Index during a conference call for media and analysts. To listen to an audio replay of the call and view presentation slides, please visit: http://www.isg-one.com/web/research-insights/isg-outsourcing-index.

About the ISG Outsourcing Index
An outgrowth of the quarterly Global ISG Outsourcing Index, the Asia Pacific ISG Outsourcing Index has measured the health of the region's outsourcing industry for 16 consecutive halves. The Global ISG Index, now in its 47th consecutive quarter, 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.

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 and global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 850 employees and operates in 21 countries.

For additional information, visit www.isg-one.com.

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