ISG Index: 2014 One of Best Years Ever for Asia Pacific

Large deals push ITO, restructured contract values to record highs

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Feb 02, 2015, 12:01 ET

BANGALORE, India, Feb. 2, 2015 /PRNewswire/ -- The Asia Pacific outsourcing industry had one of its best years ever in 2014, as the return of large deals propelled the market to record-high annual values in information technology outsourcing and restructured contracts, according to data released today by Information Services Group (ISG) (NASDAQ:III), a leading technology insights, market intelligence and advisory services company.

The Asia Pacific ISG Outsourcing Index, which measures commercial outsourcing contracts with an annual contract value (ACV) of US$5 million or more, reported total ACV of US$3 billion, up 45 percent from the prior year. Deal counts also rose, up 11 percent for the year. These strong results came despite a weaker second half that paled in comparison with the blistering pace of the first half, which saw ACV soar to all-time high of $2 billion.

"The steep rise in the market for the year was fueled by the welcome return of large deals to the region," said Sid Pai, partner and president of ISG Asia Pacific. "Whereas the value of small deal awards remained static year on year, both the mid-range and larger contracts saw strong increases. Five mega-relationships, deals with annual value of US$100 million or more, were signed in Asia Pacific during 2014: three in India and one each in Australia and Japan.

"Although the pace of growth has slowed somewhat of late, the Asia Pacific market continues to grow at a healthy rate," Pai added. Over the last five years, annual values have grown at a compound annual rate of more than 4 percent and the number of contracts have grown by more than 7 percent.

For the year, the annual value of new scope and restructured contracts were both up substantially. New scope awards totaled US$1.93 billion, up 17 percent, while the value of restructured contracts reached its highest ACV ever, US$1.02 billion, up 168 percent, supported by large awards at Airtel and Qantas.

Information technology outsourcing (ITO) ACV rocketed 50 percent above the prior year, reaching a new high of US$2.62 billion, fueled primarily by large deals, including bundled services contracts. The number of ITO awards also set a new record for the region, with 127 contracts, up 25 percent.

In contrast, BPO registered one of its slowest years ever. Both ACV and the number of awards declined, even against a very weak 2013. In fact, by number of contracts, this was BPO's weakest year in a decade.

Several industries in the region posted excellent results this year. Two of the largest verticals, telecom and manufacturing, each notched exceptional growth. Manufacturing nearly doubled its ACV, while telecom nearly tripled its 2013 performance. Both industries saw a reasonable increase in numbers of contracts. The only disappointing news came in financial services, which remained flat, as it has for the past couple of years.

In terms of geography, the region's two largest markets – Australia/New Zealand and India – were also its strongest. ANZ's ACV climbed 40 percent over last year, while India doubled its 2013 result. China, meanwhile, recorded its second-highest annual ACV ever.

"The formation of a new government, which seems committed to investing for higher economic growth, has made the India sourcing market quite bullish, with increasing activity both in private and public sectors," said Pai. "Our dialogue with service providers indicates stronger pipelines, especially on the public-sector side, where there is a push to modernize government services with mega IT projects and spend. Contract restructuring also is expected to gather momentum in the coming years, as large, previous-generation contracts in banking and telecom expire."

Elsewhere in the region, Japan logged one of its best years ever, thanks in part to several large contracts awarded, such as the TCS-Mitsubishi deal and the Wipro-Takeda Pharmaceutical transaction. "Because these gains were due mainly to large contracts rather than a marked increase in the number of awards, we expect to see some pullback in 2015 if large awards abate," said Pai.

In addition to measuring the commercial outsourcing market, ISG examined the performance of the Asia Pacific public sector market for 2014. Based on contract awards exceeding US$5 million in annual value, public sector ACV reached US$4.6 billion in 2014, nearly 50 percent higher than the previous high-water mark in 2009.

The rise in public sector ACV was driven by a number of large awards in Australia, including Transport for New South Wales' contract with Fujitsu, IBM, NEC and TCS; the Department of Defence contract awarded to Lockheed Martin; and the Department of Immigration and Border Protection's five-year contract with IHMS Servcorp.

In contrast, the number of public sector contracts awarded for the year – 102 – was down 13 percent over 2013, and at its lowest mark since 2008.

"Looking ahead, we expect healthy numbers in 2015, though growth in the first half will look flat at best," said Pai. "The record-setting first half of 2014 will be hard to beat."

ISG presented the 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 17 consecutive halves. The Global ISG Index, now in its 49th 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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