Corona crisis: European sourcing market collapses

In the wake of the Covid-19 pandemic, outsourcing demand in Europe, the Middle East and Africa (EMEA) cooled significantly in the second quarter of 2020. Business with traditional managed services is particularly affected. This segment literally collapsed with a decline of 21 percent. This emerges from the new EMEA ISG Index of the Information Services Group (ISG), for which new figures from the sourcing industry were collected. In the EMEA ISG Index, the market research and consulting company records outsourcing deals from the private sector with an annual contract value (Annual Contract Value, ACV) of at least five million euros.

The current index shows that the entire as-a-service and managed services market in the second quarter declined by nine percent year-on-year to a total of 3.9 billion euros. This is the first time since 2018 that the EMEA region has recorded two consecutive declining quarters. Classic managed services in particular have dragged the results of the overall market down. The contract volume fell by 21 percent to 2.3 billion euros. Within the managed services segment, IT outsourcing (ITO) shrank by 19 percent to 1.9 billion euros, while business process outsourcing (BPO) even fell by 31 percent to 346.4 million euros.

Read how the market for managed services collapsed in the first quarter of 2020

While the classic service segments collapsed, according to ISG, the EMEA region recorded increased demand for cloud services. Especially the move of many employees to the home office and the associated trend towards distributed work have spurred the demand for cloud services. Between April and June of this year, the total volume of As-a-Service contracts increased by 13 percent to 1.7 billion euros.

However, the various segments developed very differently. While Infrastructure as a Service (IaaS) recorded an increase of 23 percent to 1.2 billion euros, the demand for Software as a Service (SaaS) fell by eight percent to 419 million euros. EMEA got off to a good start into the 2020 service year, according to the ISG market researchers – before the region was hit by the pandemic in March.

“With a view to the last two quarters of 2020, we expect the scope of larger contracts to be reduced,” predicts Barbara Florschütz, Managing Director of Information Services Group (ISG) Germany. “Because in the near future, companies will focus more on the resilience of their business and the profitability of their operations than on broad-based digital transformation.”

The early momentum in the region is reflected in the half-year balance, which, despite the rapid decline in demand due to the pandemic in the second quarter, is roughly at the same level as the two previous years. The contract volume of the entire market in the first half of the year was 8.3 billion euros, two percent below the record levels of the first half of 2019. In the first half of 2020, As a Service rose by nine percent to 3.5 billion euros, while Managed Services increased compared to in the same period last year fell by nine percent to 4.8 billion euros.

“Covid-19 has resulted in all companies completely restructuring the way they work. This has driven up the demand for public cloud services and infrastructure as a service, ”says Barbara Florschütz, Managing Director of the Information Services Group (ISG) Germany. “The cloud enables three things: to be resilient to what might come next; become more agile to expand or reduce demand as needed; and to position oneself in a way that minimizes economic risk through flexible contracts. ”The demand for cloud-based services will also continue to rise because of the ongoing cost pressure.

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