Press Release

Regional Diversity Helps Drive Global Outsourcing Growth

ISG Momentum® Report Finds Different Outsourcing Patterns and Catalysts

New OVI Rankings Point to Global Hot Spots for Buyers and Sellers

Company Release - 2/10/2015 10:00 AM ET

STAMFORD, Conn., Feb. 10, 2015 /PRNewswire/ -- Outsourcing demand and service delivery are growing in most major regions and countries of the world, but the reasons for that growth often differ significantly from market to market, new research from Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company, has found.

Findings from the recently released ISG Momentum® Market Trends & Insights Geography Report® show that several of the most mature markets – including the U.K., the U.S., and others already steeped in outsourcing activity – currently have some of the best short-term growth potential.

Among the regional highlights covered in the report:

  • Corporate restructuring following mergers & acquisitions contributed to increased outsourcing in North America. The regional outlook remains positive because many companies are preparing for growth and plan to use outsourcing to provide scalability plus support for analytics, mobile, Internet of Things (IoT) and other innovation programs.

  • Regional outsourcing patterns within Europe are changing. The U.K., Germany and other northern and western European countries have traditionally been the strength of the regional market and continued to make heavy use of outsourcing in 2014. There was notable growth in the southern Europe subregion, where companies in Greece, Italy, Portugal and Spain are increasingly using outsourcing to reduce their costs amid challenging economic conditions.

  • Outsourcing activity increased in the Asia Pacific region, where clients have less opportunity to gain from labor arbitrage than their western peers. Domestic outsourcing activity notably increased in India and China, and rebounded in Japan.

"We found that mature clients around the world were pursuing new ways to outsource in 2014, while new clients were attracted to outsourcing to give themselves more flexibility. The result was strong demand in many countries and regions," said ISG Chief Research Officer Paul Reynolds. "The global capacity to support outsourced services is also expanding. Clients have many viable options for service delivery, and many governments around the world continue to invest in skills development and infrastructure specifically to attract service delivery business."

Overall, 45 percent of the G2000 outsourced in 2014, spending an average of $88.0 million annually on outsourcing, the ISG report found. The ISG report is based on contract data through the third quarter of 2014 from companies in the Forbes® Global 2000 rank of the world's largest public companies (see Figure 1).

Figure 1: Forbes® Global 2000 Client Outsourcing Metrics by Region


2014 Market Spend
through Q3 (US$M)

Number of G2000
Companies

Outsourcing
Penetration Rate

Average ACV
Per Company
(US$M)

Asia Pacific

$13,293

704

26%

$72.6

Africa

$361

26

23%

$60.2

Europe

$41,375

516

60%

$133.5

Latin America

$1,456

59

42%

$58.2

Middle East

$1,493

74

39%

$51.5

North America

$20,342

620

54%

$60.5

Complete G2000

$78,321

2,000

45%

$88.0

Source: ISG Research. Data through Q3 2014.

Service delivery patterns are also changing as more countries emulate India's example and are making policy and investment decisions intended to attract outsourcing service providers. ISG also noted several regional service delivery trends:

  • Nearshore service delivery from Latin America to North America continues to expand. Mexico remains the leading nearshore service delivery location, but service providers were investing in other countries and second-tier cities, often with government encouragement, to expand service delivery options in the region.

  • Data privacy concerns are running high in Europe and clients are wary of offshoring. This has helped lead to expanded service delivery on the continent, including from Eastern and Central Europe.

  • Meanwhile India, China, the Philippines and other countries in the Asia Pacific region continue to process a large amount of information technology and business process outsourcing work. Increasingly, service delivery in the region is supporting domestic clients, as outsourcing spending rose in the major markets of India, China and Japan.

ISG Introduces OVI Rankings

The latest Momentum Market Trends & Insights Geography Report for the first time includes ISG's exclusive Outsourcing Viability Index® (OVI) rankings. ISG has created two separate indices, one to rate countries on their market strength and the other to rate them on their suitability to support service delivery.

The ISG Outsourcing Viability Index – Opportunity considers outsourcing spending levels, growth potential, the competitive environment, economic and political stability and other factors to rate 25 countries on their attractiveness as markets for service provision.

The ISG Outsourcing Viability Index – Delivery Maturity ranks 25 countries on their ability to support service delivery for enterprise clients. The rankings are calculated from dozens of data points that are grouped into four dimensions: people, cost, infrastructure and business environment.

According to ISG's OVI, the U.K. is the top-ranked country for outsourcing opportunity and the U.S. placed second (see Figure 2). Germany, Australia, France and India complete the top five (France and India tied). Even though the U.K. generates less outsourcing spending than the U.S., it earned the top ranking because it placed ahead of the U.S. on measures including short-term growth potential, competitive environment for outsourcing service providers, and overall friendliness to business.

Figure 2: Top 5 Countries in the  Outsourcing Viability Index –  Opportunity

Country

Overall Rank

Current Consumption
Rank

Market Opportunity 
Rank

Market Competitiveness
Rank

Business Friendliness
Rank

U.K.

1

2

2

21

5

U.S.

2

1

3

25

14

Germany

3

3

1

22

12

Australia

4

4

4

14

10

France

5 (tie)

5

7

24

19

India

5 (tie)

6

5

20

25

Source: ISG Research

Business costs, the talent pool and service delivery maturity weigh heavily in the ISG Outsourcing Viability Index – Delivery Maturity rankings (Figure 3). India's maturity as a service delivery location helped it to the top-ranked position, and the country also scored well for its people and cost structure. China was second to India despite some unfavorable cost factors and was followed by Ireland, Mexico and Russia.

Figure 3: Top 5 Countries in the  Outsourcing Viability Index –  Delivery Maturity

Country

Overall Rank

People Rank

Cost
Rank

Infrastructure
Rank

Business
Environment Rank

India

1

2

8

23

3

China

2

1

22

14

2

Ireland

3

8

24

1

1

Mexico

4

4

15

14

4

Russia

5

9

13

6

9

Source: ISG Research

Between the two indices, 47 different countries were ranked and analyzed.

ISG's Momentum Market Trends & Insights Geography Report includes more than three dozen chapters on individual countries and regions, presents in-depth spending data for leading countries on the Market Opportunity OVI, and presents firsthand observations from ISG advisors regarding what is influencing outsourcing activity in each country and region.

This latest Momentum® report is part of a series of quarterly reports that focus on outsourcing activity by service line, vertical industry and geographic location. To read the executive summary of this report or to learn about other Momentum services and information products, please visit www.isg-one.com/web/services/momentum/.

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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SOURCE Information Services Group, Inc.