1q13 isg outsourcing index

Hosted by:

Joe Foresi, Janney

11 April 2013

The Global ISG Outsourcing Index

First Quarter 2013

Market Data and Insights

© 2013 Information Services

Group, Inc. All Rights Reserved

isg-one.com

*Contracts with ACV ≥ $5M

2

Covering the state of the outsourcing industry for global, commercial contracts.*

Welcome to the 42st Quarterly Outsourcing Index Review

Esteban Herrera Partner

John Keppel President & Chief Marketing Officer

Dr. David Howie Partner



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At A Glance

“ “

BROADER MARKET SAGGED IN 1Q13, BOTH Y/Y AND Q/Q

MEGA-RELATIONSHIPS WERE UP OVER 50% Y/Y, BUT SMALL AWARDS SHOWED CONSIDERABLE WEAKNESS

BPO MAINTAINED RECENT STRENGTH, WITH ACTIVITY UP Q/Q, BUT ITO RESULTS FELL SIGNIFICANTLY Y/Y

MATURE MARKETS IN AMERICAS AND EMEA DECLINED SHARPLY Y/Y

HEALTHY INCREASE IN ASIA PACIFIC PERFORMANCE, WITH POSITIVE RESULTS IN AUSTRALIA-NEW ZEALAND

1Q13 1Q Y/Y 1Q Q/Q 1Q13 1Q Y/Y 1Q Q/Q

Scorecard ACV ($B)* Change Change Counts Change Change

Global Market $ 3.9 -27% -24% 223 -24% -16%

New Scope $ 2.1 -31% -37% 166 -22% -9%

Restructurings $ 1.8 -22% 1% 57 -28% -30%

Mega-relationships $ 1.2 54% 4% 7 -13% -79%

ITO $ 2.4 -35% -28% 127 -34% -30%

BPO $ 1.5 -10% -18% 96 -3% 16%

Americas $ 1.6 -39% -15% 90 -38% -16%

EMEA $ 1.9 -20% -30% 105 -15% -17%

Asia Pacific $ 0.4 8% -23% 28 22% -7%



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ACV of almost $4B was down 27% Y/Y and 24% Q/Q. However, the trailing 12-month ACV was on par with the pervious 12 month period, tempering results.

Broader Market ACV ($B)*

New Scope vs. Restructuring ACV(B)*

Broader Market Contract Award Trends

$3.9

$5.2 $5.4 $5.7 $5.4 $6.5 $5.6

$4.4

$5.4 $5.7

$4.5

$5.6 $6.2

Avg of Prior 1Qs $5.7

1Q134Q3Q2Q1Q124Q3Q2Q1Q114Q3Q2Q1Q10

Broader Market Counts

$2.1

$3.4 $3.1

$4.0

$1.8 $1.8 $2.3

$1.4

1Q134Q3Q2Q1Q124Q3Q2Q1Q11

New Scope Restructuring

223 264

292

349

259

Avg of Prior 1Qs 300

1Q134Q3Q2Q1Q124Q3Q2Q1Q114Q3Q2Q1Q10



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Mega-relationships, deals with ACV awards 100M+, were up 54% Y/Y and 4% Q/Q. Mid to small sized awards dipped , but the trailing 12-month compare was stable.

Mega-relationships in 8 Quarter Increments New Scope vs. Restructuring Counts

Broader Market Contract Trends for the Largest Deals

ACV(B)* by Bands

$2.4

$4.0 $3.8 $3.6 $4.6 $4.1 $3.9 $3.5

$4.8

$0.3 $0.9 $1.1 $0.8 $1.1 $0.8 $1.0 $0.5

$1.0

$1.2 $1.2 $1.5 $2.1

$0.8

$2.3 $1.7

$0.9 $0.6

1Q134Q3Q2Q1Q124Q3Q2Q1Q11

$5 - 49M $50-99M $100M +

31

37

48

31

22

13

2Q11 - 1Q13

2Q09 - 1Q11

2Q07 - 1Q09




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ITO ACV of almost $2.5B was down 35% Y/Y and 27% Q/Q. Virtually every industry dropped with the exception of Energy, driven by large deal activity.

ITO Annual ACV ($B)* ITO Industry ACV ($B)*

ITO Contract Award Trends

ITO Counts

$2.4 $3.3 $3.6 $3.2 $3.7

$4.6 $3.9

$2.8 $3.5

$4.8

$3.2 $4.3 $4.7


1Q134Q3Q2Q1Q124Q3Q2Q1Q114Q3Q2Q1Q10

127

193 223

155


1Q134Q3Q2Q1Q124Q3Q2Q1Q114Q3Q2Q1Q10

$1.02

$0.76

$0.43

$0.43

$0.37

$0.26

$0.23

$0.15

$0.54

$0.59

$0.27

$0.57

$0.09

$0.13

$0.14

$0.04

Manufacturing

Financial Services

Travel, Transport,Leisure

Energy

Telecom & Media

Business Services

Healthcare &Pharma

Retail

Prior 5 Like-Qtr Avg 1Q13



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BPO ACV of 1.5B was down 12% Y/Y and 21% Q/Q, yet Telecom and Travel & Transportation industries significantly outperformed their historical averages.

BPO Annual ACV ($B)* BPO Industry ACV ($B)*

BPO Contract Award Trends

$1.5 $1.9 $1.8

$2.5

$1.7 $1.9 $1.7 $1.6 $1.9

$0.9 $1.2 $1.2 $1.5


1Q134Q3Q2Q1Q124Q3Q2Q1Q114Q3Q2Q1Q10

$0.42

$0.35

$0.31

$0.14

$0.14

$0.12

$0.09

$0.05

$0.21

$0.29

$0.54

$0.10

$0.13

$0.08

$0.14

$0.06

Manufacturing

Financial Services

Telecom & Media

Business Services

Healthcare &Pharma

Energy


Retail


BPO Counts

96

83

99

126

104


1Q134Q3Q2Q1Q124Q3Q2Q1Q114Q3Q2Q1Q10



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Americas ACV of $1.6B was down 39% Y/Y and 15% Q/Q. Americas BPO is up 17% Y/Y and 50% Q/Q, outperforming the ITO sector for the first time.

Americas ACV ($B)*

Americas New vs. Restructuring ACV(B)*

Americas Contract Award Trends

$1.6 $1.9 $1.8 $1.9 $2.6 $2.3 $2.0 $1.8 $2.0

$1.1 $2.0

$2.8 $2.9


1Q134Q3Q2Q1Q124Q3Q2Q1Q114Q3Q2Q1Q10

$0.84

$1.19

$1.05

$1.39

$0.73 $0.67

$1.54

$0.62

1Q134Q3Q2Q1Q124Q3Q2Q1Q11


Americas Counts by ACV Bands

$0.7

$1.2 $1.2 $1.2

$1.8

$1.3 $1.1

$1.1 $1.1

$0.9

$0.6 $0.6 $0.6 $0.8

$0.9 $0.8

$0.7 $0.9

1Q134Q3Q2Q1Q124Q3Q2Q1Q11

ITO ACV BPO ACV



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$2.31

$1.35

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

US

The U.S .contributed most to the drop in the Americas ACV, down 43% Y/Y and 24% Q/Q. Mexico continues to enjoy large-deal activity, keeping the ACV numbers high.

Americas Contract Award Trends Detail

Americas Sub-region ACV ($B)*

$0.66

$0.37

$0.27

$0.25

$0.31

$0.13

$0.11

$0.11

$0.21

$0.35

$0.54

$0.11

$0.19

$0.02

$0.07

$0.09

Manufacturing

Financial Services

Telecom & Media

Business Services

Healthcare &Pharma

Retail

Energy



Americas Industry ACV ($B)*

$0.24

$0.01

$0.03

$0.00

$0.09

$0.03

$0.01

$0.10

$-

$0.05

$0.10

$0.15

$0.20

$0.25

Canada Brazil OtherLatAm

Mexico

Prior 5 Like-Qtr Range Prior 5 Like-Qtr Avg 1Q12 1Q13



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EMEA ACV of almost $2B was down 20% Y/Y and 30% Q/Q. Restructuring ACV was up 12% Y/Y and 29% Q/Q in EMEA.

EMEA ACV ($B)*

EMEA New vs. Restructuring ACV(B)*

EMEA Contract Award Trends

$1.9 $2.7 $2.9

$2.4 $2.4

$3.7 $3.1

$2.3 $2.7

$3.5

$2.0 $2.4

$3.0


1Q134Q3Q2Q1Q124Q3Q2Q1Q114Q3Q2Q1Q10

EMEA Counts by ACV Bands

$0.94

$1.88 $1.63

$2.06

$0.97 $0.87 $0.75 $0.69

1Q134Q3Q2Q1Q124Q3Q2Q1Q11


$1.4 $1.6

$2.0

$1.4 $1.6

$2.9 $2.5

$1.5

$2.0

$0.5

$1.2 $0.8 $1.0 $0.8 $0.8 $0.7 $0.8 $0.7

1Q134Q3Q2Q1Q124Q3Q2Q1Q11

ITO ACV BPO ACV



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EMEA market leaders UK and DACH had weak 1Q13 results. However, Nordics and Benelux, a bit off their like-quarter averages, had significant growth from 4Q12.

EMEA Contract Award Trends Detail

EMEA Sub-region ACV ($B)*

$0.67

$0.64

$0.42

$0.35

$0.30

$0.12

$0.07

$0.06

0.46

0.48

0.42

0.22

0.08

0.11

0.08

0.08

Manufacturing

Financial Services

Energy


Telecom & Media

Business Services

Retail

Healthcare &Pharma


EMEA Industry ACV ($B)*

$0.90

$0.39 $0.41 $0.36

$0.04

$0.11 $0.10 $0.07

$0.63

$0.27

$0.43 $0.37

$0.04 $0.03 $0.06

$0.08

$-

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

UK &Ireland

DACH Nordics Benelux France SouthernEurope

Africa &Middle

East

E. Europe& Russia




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Asia Pacific ACV of almost $450M was up 8% Y/Y but down 23% Q/Q. However, the trailing 12-month ACV is up over 80% from the prior 12 month period.

Asia Pacific ACV ($B)*

AP New vs. Restructuring ACV(B)*

Asia Pacific Contract Award Trends

$0.44 $0.58 $0.72

$1.41

$0.41 $0.52 $0.46 $0.35 $0.65

$1.07

$0.48 $0.34 $0.33


1Q134Q3Q2Q1Q124Q3Q2Q1Q114Q3Q2Q1Q10

$0.36 $0.34

$1.32

$0.41

$0.56

$0.08 $0.24 $0.00 $0.09

1Q134Q3Q2Q1Q124Q3Q2Q1Q11


AP Counts by ACV Bands

$0.31

$0.47 $0.38

$0.56

$0.30 $0.43

$0.27 $0.29

$0.43

$0.13 $0.11 $0.34

$0.86

$0.11 $0.09 $0.19 $0.06

$0.22

1Q134Q3Q2Q1Q124Q3Q2Q1Q11

ITO ACV BPO ACV



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Australia-New Zealand and Japan posted positive results due to several large awards. Energy and Travel & Transport were up over historical averages.

Asia Pacific Contract Award Trends Detail

$0.10

$0.06

$0.14

$0.03

$0.07

$0.00

$0.15

$0.08

$0.18

$0.01 $0.02 $0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

ANZ India andSouth Asia

Japan ASEAN GreaterChina

South Korea


Asia Pacific Sub-region ACV ($B)*

$0.11

$0.11

$0.09

$0.05

$0.02

$0.02

$0.01

$0.001

$0.01

$0.09

$0.06

$0.10

$0.17

$0.01

$0.01

$0.00

Telecom & Media

Manufacturing

Financial Services


Energy

Business Services

Retail

Healthcare &Pharma


AP Industry ACV ($B)*



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The top service providers in each sector based on 1Q13 or TTM ACV awarded

Top Service Providers Across the Globe

Note: Service providers in alphabetical order; no rankings implied. Placements based on ACV from commercial contract awards sourced from ISG Contracts Knowledgebase ®.

Accenture

AT&T

Atos

BT

Capgemini

CGI

CSC

Dell

HCL

HP

IBM

Infosys

ISS Global A/S

Jones Lang LaSalle Mahindra Satyam

MITIE

T-Systems

TCS

Wipro

Xerox

Trailing 12 Months Global Top 20

Accenture

AT&T

Capgemini

CGI

Dell

Evry

Fidelity

Genpact

HCL

HP

IBM

Infosys

Nihon Unisys

StarTek

TCS

Tieto

Virtusa

Wipro

Xchanging

Xerox

1Q13 Global Top 20

Special Topic for First Quarter 2013

Esteban Herrera Partner



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Western-heritage Providers

Leading Providers Experience Shift in Market Share

13%

12%

ACV

Awards

Awards

ACV

Market Share Shifts 2009 - 2012

India-heritage Providers

9%

7%

CAGR Disparity 2005 - 2012

India-heritage

32%

16%

7% 0.4%

Western-heritage

2005 2009 2012



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3 Make New Inroads into the Global Public Sector Markets

13%

Opportunities and Challenges for Short-term Growth

Continue Winning in the Mature UK and US Restructuring Markets

4%

20%

2005 2009 2012

Increase European Market Share via Enhanced Offshore Value Prop

India-heritage Restructuring ACV

Market Share

1

7%

2005-08 2009-12

Capitalize on BPO Growth via Investment in Vertical Solutions

India-heritage European

ACV Market Share

India-heritage BPO ACV

Market Share

16%

36%

2005 2009 2012

$ $

4

2

$ $ $ $

Investment Investment



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Long-term, the best defense may be a good offense, a challenge for western providers with high overhead. India-heritage providers need long-term growth engines to stay on trajectory.

Staying Ahead: What got you here will not get you there.

Capturing the Expected Growth in the Mid-Market India-heritage Providers have proven offshoring credentials Western providers have started to create dedicated mid-market organizations

Lower Cost of Switching Puts Everybody on Notice Equal threat to all providers, no matter their heritage Incumbency advantage disappearing as transitions become less painful

ITO Challenge Get familiar with the new buyers of emerging technologies, who sit outside the CIO’s organization.

BPO Challenge Pay for performance, rather than for bodies, is becoming the norm. Pricing based on labor mark-up is becoming less attractive.

$



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Market continues to struggle to regain traction with soft spots in ACV smaller deal space and in New Scope

ITO performance is weak and BPO remains the bright spot

Trailing 12 months is encouraging and the Large Deal market was strong

Americas Manufacturing was weak and also had a low number of ITO contracts. BPO gains rise above ITO in the region.

EMEA New Scope activity fell unexpectedly but restructurings rose. Financial Services was off and BPO ACV fell but contract awards remained strong

Asia Pacific held steady, with ACV and activity increasing Y/Y, and positive results in Australia-New Zealand.

Keep expectations in check for 2Q13 with softness in the overall market

Positive signs point to a healthier outlook for the full year

Strength in BPO

Positivity in the emerging markets in the last 12 months

Impact of timing on deal flow should eventually rebound

1Q13 ISG Outsourcing Index Summary and Outlook

summary market

outlook market



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Please contact us with your questions and comments.

Learn More

--- Media Contacts ---

► John Keppel President & Chief Marketing Officer +44 (0)7879 432 212 [email protected]

► Andrew Park Director, ISG +1 919 259 9252 [email protected]

► Gwennie Poor Cohn & Wolfe for ISG +1 212 798 9842 [email protected]

blog.isg-one.com

First Quarter 2013



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The ISG Outsourcing Index has moved to ACV as the primary measure of the Broader Market. In transition, we will continue to provide a high-level TCV view of the market via a Scorecard analysis.

1Q13 TCV Scorecard

*Contracts with TCV ≥ $25M

1Q13 1Q Y/Y 1Q Q/Q Counts Change Change

189 -21% -19%

141 -18% -17%

48 -26% -26%

3 200% 50%

104 -34% -33%

85 5% 9%

77 -31% -21%

87 -19% -21%

25 32% -7%

1Q13 1Q Y/Y 1Q Q/Q

Scorecard TCV ($B)* Change Change

Global Market $ 18.6 -20% -23%

New Scope $ 9.8 -30% -42%

Restructurings $ 8.8 -4% 18%

Mega-deals $ 5.0 213% 111%

ITO $ 10.8 -33% -28%

BPO $ 7.8 8% -16%

Americas $ 7.9 -25% -7%

EMEA $ 8.7 -21% -32%

Asia Pacific $ 2.1 11% -33%

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1q13 isg outsourcing index

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