Global outsourcing contracts grew 31% to over $24 billion in Jan-March: ISG

This is likely to increase in the coming quarters, ISG said.

Global outsourcing contracts grew 31% to a record $24.2 billion in the first quarter of this calendar year, according to data from the ISG index. ISG measures commercial outsourcing contracts on Annual Contract Value (ACV) terms.

The managed services market, meanwhile, continued its recent string of $8 billion-plus wins for the fourth consecutive quarter, reaching $8.6 billion of ACV, up 13% year over year.

“Qualitatively, we do feel like the Indian heritage providers are likely going to increase their share a bit and multinationals (like Accenture, Capgemini) will likely shrink share a little bit,” said Stanton Jones, director and principal analyst, ISG.

The global Cloud as a Service, or XaaS, market broke through the $15 billion mark for the first time ever in a quarter, reaching a record $15.6 billion.

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This was up 43% versus the prior year.

However, cost pressures from an industrywide 20% annualized attrition rate have led to 4-7% increase in deal pricing as well, analysts said.

Within managed services, IT outsourcing (ITO) slumped 6% versus the prior year to $5.6 billion. This was caused by weakness in Europe, a double-digit decline in infrastructure services, and a sequential slowdown in application development and maintenance (ADM).

A total of 602 managed services contracts were awarded in the first quarter, up 14% versus the prior year, with a majority – nearly 60% – falling within the smallest range of $5 million to $10 million of ACV.

Six mega-deals – contracts with annual value of $100 million or more – were awarded in the quarter, versus four such contracts in the prior year. Combined, they were worth more than $820 million in ACV.

Demand for managed services was strongest in the telecommunications and manufacturing sectors, as well as in the financial services industry, which saw record ACV in the quarter.

ISG said talent shortage is affecting pricing on time-and-materials projects, with pricing up by 15% or more.

“On the provider side, almost half of them indicated that providers are struggling with staffing, and in turn, they’re not being able to ensure a smooth transition and run services. Almost another half notice performance issues due to lack of resources,” said Namratha Darshan, director and principal analyst, ISG.

The ever-unpredictable business process outsourcing (BPO) segment, meanwhile, surged 86% to a record $3 billion of ACV, fuelled by strong demand for industry-specific services.