Fourth Quarter and Full Year 2013 Global ISG Outsourcing Index

Hosted by:

Moshe Katri, Cowen and Company

16 January 2014

The Global ISG Outsourcing Index

Fourth Quarter and Full Year 2013

Market Data and Insights

© 2014 Information Services

Group, Inc. All Rights Reserved

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*Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase®

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

Welcome to the 45th Quarterly Outsourcing Index Review

Esteban Herrera Partner

John Keppel Partner & President

Dr. David Howie Partner



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At a Glance

Scorecard 4Q13 4Q Y/Y 4Q Q/Q 2013 Y/Y

ACV ($B)* Change Change ACV ($B)* Change

Global Market $ 4.6 -12% -17% $ 18.7 -18%

New Scope $ 3.0 -16% -5% $ 11.2 -27%

Restructurings $ 1.7 -5% -32% $ 7.5 -2%

Mega-relationships $ 0.5 -52% -58% $ 3.7 -38%

ITO $ 3.7 8% -12% $ 13.5 -8%

BPO $ 0.9 -50% -32% $ 5.2 -37%

Americas $ 1.5 -23% -17% $ 6.5 -26%

EMEA $ 2.7 -5% -21% $ 10.2 -6%

Asia Pacific $ 0.5 -10% 15% $ 1.9 -40%

2013 Y/Y Counts Change

1,155 2%

798 -5%

357 22%

24 -31%

790 8%

365 -9%

442 -10%

587 18%

126 -11%



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Fourth-quarter ACV was down 12% Y/Y and 17% Q/Q. For the full year, ACV was down 18% from 2012; however, contract counts ticked up 2% over 2012.

Broader Market 4Q and Full-Year ACV ($B)*

Broader Market 4Q and Full-Year Contracting Counts

Broader Market Contract Award Trends

$14.1 $17.6 $15.4 $16.4 $13.7 $13.6 $10.8 $11.1 $11.8 $12.3

$4.6 $5.3 $6.6 $5.6

$6.9 $4.6 $5.8 $4.1 $5.3 $3.9

$18.7 $22.9 $22.0 $22.0 $20.6

$18.2 $16.6 $15.2 $17.1 $16.2

201312111009080706052004

1Q to 3Q ACV 4Q ACV

846 859 882 741 684

579 464 435 405 421

309 273 300 247 288

195 153 176 157 154

1,155 1,132 1,182 988 972

774 617 611 562 575

201312111009080706052004

1Q to 3Q Counts 4Q Counts



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$153

$185 $179

$55 $57 $55

$11 $13 $14

201320082004

24 31 36

68 70

57

1,063

673

482

201320082004

$3.7 $5.7

$6.5

$3.8 $4.0 $3.1

$11.3

$8.5

$6.6

201320082004

60%

20%

20%

2013 saw the continued dominance of contracting in the smallest ACV bands, and average deal size trended down across all bands.

Broader Market Contract Trends by Deal Size

Comparing Broader Market Contracting Awards ($B)* Grouping in ACV Contract Size Bands

ACV($B)*

$5-39M $40-99M $100M +

Contract Counts Average Contract Size



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New Scope ACV dipped 27% from 2012, while Restructuring ACV held steady. Restructuring counts rose 22% from 2012, but New Scope awards continued down.

Restructuring 4Q and Full-Year ACV ($B)*

Broader Market New Scope & Restructuring Trends

New Scope 4Q and Full-Year ACV ($B)*

Restructuring 4Q and Full-Year Counts New Scope 4Q and Full-Year Counts

258 207 221 172 144

113 77 87 85 72

99 86 66

63 54

38 24 33 31 31

357 293 287

235 198

151 101 120 116 103

201312111009080706052004


588 652 661 569 540

466 387 348 320 349

210 187 234

184 234 157

129 143 126 123

798 839 895

753 774

623 516 491 446 472

201312111009080706052004


$8.3 $11.8 $10.2 $11.3 $10.5 $10.4 $8.6 $7.0 $8.9 $9.8

$3.0

$3.5 $4.1 $3.8 $5.4

$3.2 $4.8 $3.1

$3.7 $3.0

$11.2

$15.3 $14.3 $15.1 $16.0 $13.6 $13.5

$10.1 $12.6 $12.8

201312111009080706052004

1Q to 3Q ACV 4Q ACV

$5.8 $5.9 $5.2 $5.1 $3.2 $3.2 $2.1

$4.1 $3.0 $2.5

$1.7 $1.8 $2.5 $1.8

$1.5 $1.4 $1.0

$1.0 $1.6

$0.9

$7.5 $7.6 $7.7 $6.9

$4.6 $4.6 $3.1

$5.1 $4.5 $3.3

201312111009080706052004

1Q to 3Q ACV 4Q ACV



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Manufacturing stood out, with ACV off $2B+ from its prior 5-year average. Yet Energy and Travel, Transport & Leisure performed close to their prior 5-year highs.

Broader Market Industry Trends

Broader Market 5 Prior Year ACV ($B)* by Industry

$3.48

$5.33

$2.59

$2.23 $2.03

$1.41

$1.01

$0.64

$-

$1

$2

$3

$4

$5

$6

$7

Manufacturing FinancialServices

Telecom &Media

Energy Travel,Transport,

Leisure

Healthcare &Pharma

BusinessServices

Retail

Range of Prior 5 Years Avg of 5 Prior Years 2012 2013



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4Q ITO ACV was up 8% Y/Y, yet 2013 ITO ACV was down 8% from 2012. ITO contracting counts continued to rise, up 8% over 2012 counts.

ITO 4Q and Full-Year ACV ($B) and Contract Counts*

ITO Full-Year ACV ($B)* by Industry

ITO Contract Award Trends

$2.65

$3.98

$1.41

$1.61

$0.80

$1.63

$1.01

$0.42

$- $1 $2 $3 $4 $5

Manufacturing

Financial Services

Telecom & Media

Energy

Business Services

Travel, Transport, Leisure

Healthcare & Pharma

Retail

2012 2013

ITO ACV ($B)* by Function

$5.2

$3.5

$2.4

$2.5

$- $2 $4 $6

ADM

Infrastructure

ADM + Infrastructure

Network Services

2012 2013

$9.8 $11.3 $10.3 $12.3 $9.8 $9.2 $7.7 $7.9 $8.5 $8.0

$3.7 $3.4 $4.7 $4.7

$5.0 $3.0 $4.0 $3.0 $3.3 $2.6

$13.5 $14.7 $15.0 $16.9 $14.8

$10.6

790 729 741

622 650

365

201312111009080706052004

1Q to 3Q ACV 4Q ACV Full-Year Counts



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4Q and full-year BPO ACV were down substantially Y/Y on the lack of large contract awards.

BPO 4Q and Full-Year ACV ($B) and Contract Counts*

BPO Full-Year ACV ($B)* by Industries

BPO Contract Award Trends

$1.35

$0.83

$1.18

$0.61

$0.21

$0.40

$0.39

$0.21

$- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0

Financial Services

Manufacturing

Telecom & Media

Energy

Business Services

Healthcare & Pharma

Travel, Transport, Leisure

Retail

2012 2013

BPO Full-Year ACV ($B)* by Function

$0.43

$1.40

$0.24

$0.96

$0.91

$0.60

$0.40

$0.13

$0.07

$0.05

$- $0.5 $1.0 $1.5 $2.0

Facilities Mgmt

Industry-Specific

R&D/KPO

Contact Centers

Multi-Process

F&A

HRO

Document Mgmt

Procurement

Supply Chain Mgmt

2012 2013

$4.3 $6.4 $5.1 $4.2 $3.9 $4.4 $3.0 $3.2 $3.3 $4.3

$0.9

$1.9 $1.9

$0.9 $1.9 $1.6 $1.9 $1.1 $1.9 $1.2

$5.2

$8.2 $7.0

$5.1 $5.8 $5.6

365 403 441

366 322

210

201312111009080706052004

1Q to 3Q ACV 4Q ACV Full-Year Counts



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Accenture Atos

Capgemini Cognizant

HCL IBM

Infosys TCS

Wipro

Aditya Birla Minacs Allscripts Healthcare

Aon Hewitt Atento Capita

CGI CSG Limited

Genpact Interserve

StarTek WNS

AT&T BT

CSC Dell

EVRY HP

iGATE Tech Mahindra

T-Systems Virtusa Xerox

ITO Only

80% of providers who lead in both ITO and BPO were repeat performers from 2012.

2013 Top 20 Outsourcing Service Providers by Scope

Note: Service providers in alphabetical order; no rankings implied. Placements based on 2013 ACV commercial contract awards sourced from ISG Contracts Knowledgebase ®.

BPO Only

Leaders in both ITO and BPO



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4Q ACV was down moderately Y/Y and Q/Q. For 2013, ACV fell more than 25% from 2012, as contract counts continued down, off 10% from last year.

Americas 4Q and Full-Year ACV ($B)*

Americas Full-Year Segment Details ACV ($B)*

Americas Contract Award Trends

Americas 4Q and Full-Year Counts

$5.0 $6.9 $5.8

$7.7 $6.1

$4.4 $4.1 $5.8 $5.5 $5.7

$1.5

$1.9 $2.3

$1.1 $2.2

$1.8 $2.7 $1.8 $2.0 $1.5

$6.5

$8.8 $8.1

$8.8 $8.3

$6.2 $6.8

$7.6 $7.5 $7.1

201312111009080706052004

1Q to 3Q ACV 4Q ACV

327 384 380 349 298

245 201 198 187 180

115 109 137

82 116 87

72 75 65 61

442 493 517

431 414

332 273 273 252 241

201312111009080706052004


$3.8

$2.7

$4.1

$2.4

$0

$2

$4

$6

$8

New Scope Restructuring ITO BPO




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U.S. ACV was down about 25% from 2012. Drops in the Manufacturing and Financial Services sectors contributed most to the decline.

Americas Contract Award Trends Detail

Americas Sub-regions 5 Prior Years ACV ($B)*

Americas Industries Full-Year ACV ($B)*

$0.26

$0.15 $0.16

$0.20

$-

$0.1

$0.2

$0.3

$0.4

$0.5

$0.6

Canada Brazil Mexico Other LatAm


$5.78

$-

$1

$2

$3

$4

$5

$6

$7

$8

U.S.

$1.43

$1.33

$1.24

$0.89

$0.38

$0.39

$0.59

$0.29

$- $1 $2 $3 $4

Manufacturing

Financial Services

Telecom & Media

Healthcare &Pharma

Business Services

Retail

Energy

Travel, Transport,Leisure

2012 2013



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ACV for fourth-quarter and full-year ACV was down slightly Y/Y, yet contract counts continued to climb, up almost 18% from 2012.

EMEA 4Q and Full-Year ACV ($B)*

EMEA Full-Year Segment Details ACV ($B)*

EMEA Contract Award Trends

EMEA 4Q and Full-Year Counts

$7.5 $8.1 $8.1 $7.6 $5.7

$8.0 $5.1 $4.2

$5.6 $5.1

$2.7 $2.8 $3.8 $3.4 $4.0

$1.9

$2.3 $1.9

$2.6 $2.1

$10.2 $10.9 $11.9

$11.0 $9.7 $9.9

$7.3 $6.1

$8.1 $7.2

201312111009080706052004

1Q to 3Q ACV 4Q ACV

420 364 397 313 296

272 200 184 179 183

167 134 138

129 135 76

63 81 74 68

587 498 535

442 431 348

263 265 253 251

201312111009080706052004


$5.8

$4.4

$7.8

$2.4

$0

$2

$4

$6

$8

$10





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Most markets in EMEA were flat in 2013. However, U.K. ACV was down 30% Y/Y despite a 13% increase in contract counts.

EMEA Contract Award Trends Detail

EMEA Sub-regions 5 Prior Years ACV ($B)* EMEA Industries

Full-Year ACV ($B)*

$3.4

$1.8

$1.1

$1.4

$1.4

$0.6

$0.2

$0.4

$- $1 $2 $3 $4 $5

Financial Services

Manufacturing

Telecom & Media

Energy


Business Services

Retail

Healthcare & Pharma

2012 2013

$3.31

$2.01 $1.74

$1.13

$0.51

$0.88

$0.44 $0.20

$-

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

$5.5

U.K. &Ireland

DACH Nordics Benelux France SouthernEurope

Africa &Middle

East

E. Europe& Russia




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4Q ACV was down moderately Y/Y. For 2013, ACV dropped substantially from 2012, and contract counts dipped more than 10%.

Asia Pacific 4Q and Full-Year ACV ($B)*

Asia Pacific Full-Year Segment Details ACV ($B)*

Asia Pacific Contract Award Trends

$1.4

$2.7

$1.5 $1.1

$2.0 $1.3

$1.6 $1.2

$0.7 $1.6

$0.5

$0.6

$0.5 $1.1

$0.6

$0.9 $0.8

$0.3 $0.7

$0.3

$1.9

$3.2

$2.1 $2.2

$2.6

$2.1 $2.5

$1.5 $1.5 $1.9

201312111009080706052004

1Q to 3Q ACV 4Q ACV

$1.59

$0.31

$1.60

$0.34 $0

$1

$2

$3



Asia Pacific 4Q and Full-Year Counts

99 111 105 79 90

62 63 53 39 58

27 30

25

36 37

32 18 20

18 25

126 141

130 115

127

94 81

73 57

83

201312111009080706052004




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Several of the largest markets in Asia Pacific suffered declines in 2013, notably India, Australia-New Zealand and the Media & Telecom sectors.

Asia Pacific Contract Award Trends Detail

Asia Pacific Sub-regions 5 Prior Years ACV ($B)* Asia Pacific Industries

Full Year ACV ($B)*

$0.22

$0.28

$0.65

$0.07

$0.32

$0.22

$0.03

$0.16

$- $0.5 $1.0 $1.5

Telecom & Media

Manufacturing

Financial Services

Business Services


Energy

Retail

Healthcare & Pharma

2012 2013

$0.40

$0.62

$0.33

$0.19

$0.38

$0.03 $-

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

India andSouth Asia

ANZ GreaterChina

ASEAN Japan South Korea




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Atos Capita

CGI EVRY iGATE

Quindell Tieto

T-Systems

Amdocs Chinasoft

Lufthansa Systems Group Fidelity Fujitsu

Jones Lang LaSalle Nihon Unisys SingTel Optus

Sutherland Telecom of New Zealand

Allscripts CSG Limited

Dell Polaris Software

StarTek Virtusa Xerox

Accenture Capgemini Cognizant

CSC HCL IBM

Infosys Tech Mahindra

TCS


CSC HCL IBM


TCS


CSC HCL IBM


TCS

Wipro AT&T

BT HP

AT&T

BT HP

Wipro

Asia Pacific EMEA Americas

All of the leading providers in the global and multi-region categories were repeat performers from 2012. India-heritage providers had a strong showing in the Top 20.

2013 Top 20 Outsourcing Service Providers by Region

Note: Service providers in alphabetical order; no rankings implied. Placements based on 2013 ACV commercial contract awards sourced from ISG Contracts Knowledgebase ®.

Global

Multi-Region

Single Region

Special Topic for Fourth Quarter 2013

John Keppel

Partner and President



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Recognizing the Key Forces for Change in Outsourcing Market Dynamics

Market Saturation in Traditionally Strong Segments

Sourcing Model Matures in Major Territories and Industries

Stepped-up Pressure on Contract Pricing

Sustained Period of Economic Pressure in the West

Provider Completion Up

Rise of the Small Deal

Deal Term Down

Unit Cost Drops

Financial Services and Manufacturing Northern Europe

and U.S. Regions Largest Western G-2000 Companies

1%

15%

30%

Americas EMEA Asia Pacific

Growth in G-2000 Sourcing from 5 Years Ago

SIAM Provider Client

Multiple ITO and

BPO Providers



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Taking Advantage of the New Market Forces

Providers should Get smarter with targeting strategies for

underpenetrated markets and industries. Seek out underpenetrated industries like Energy, Pharma and Transportation. Cultivate new clients in bottom quartile of the G-2000 by offering new solutions.

Force 1 Market Saturation in Traditionally Strong Segments

Providers should Solve the challenge of expanding into the

more rapidly growing Eastern economies.

Force 2 Sustained Period of Economic Pressure in the West

Note Eastern Service Providers are maturing rapidly, are better positioned and are starting to win business from new G-2000 companies in the East.

Providers should Focus on delivering good returns,

even on reducing revenues.

Force 3 Stepped-up Pressure on Contract Pricing

Improve margins by optimizing the efficiency of delivered service. Drive down costs via technology innovations, process enhancements and automation.

Force 4 Sourcing Model Matures in Western Markets

Providers should Leverage experience in mature markets

to make sourcing relevant to new buyers. Take the opportunity to move directly to current sourcing practices in new industries and with new buyers, avoiding the growing pains the early adopters experienced.



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2013 had increased deal activity but at a smaller average deal size, the new normal. Services cost less, holding down overall ACV.

ITO activity is up on the strong performance in ADM sourcing.

BPO activity recedes due to lack of large deals, especially in the Facilities Management/Corporate Real Estate function.

EMEA had a sizable increase in the number of contracts and saw its fourth straight year of ACV over $10M.

Americas results were down largely on a decline in U.S. ACV.

Asia Pacific results suffered from a lack of large deals that drive their market.

Manufacturing fell back following several years of strong performance. Conversely, Energy and Travel, Transport & Leisure performed close to their prior 5-year highs.

In 1H14, look for positive Broader Market results, based on a stronger industry pipeline, and expect a Global Market increase of around 5 percent.

In 2014, expect service providers to continue to offer more varied solutions, such as systems integration work, transformation work, project services and, increasingly, automation.

ACV declined, but the effect on the market from recovering economies tempers that. Service providers’ responses to changing sourcing market dynamics will be key to their success.

4Q13 and Full-Year 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 Partner and President, ISG +44 (0)7879 432 212 [email protected]

► Will Thoretz Leader, Marketing & Communications, ISG +1 203 517 3119 [email protected]

► Jim Baptiste Matter Communications for ISG +1 978 518 4527 [email protected]

blog.isg-one.com

Fourth Quarter and Full Year 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.

Fourth Quarter and Full Year TCV Scorecard

*Contracts with TCV ≥ $25M from the ISG Contracts Knowledgebase®

Scorecard 4Q13 4Q Y/Y 4Q Q/Q 2013 2013 Y/Y

TCV ($B)* Change Change TCV ($B)* Change

Global Market $ 20.0 -16% -18% $ 82.9 -20%

New Scope $ 14.3 -3% -17% $ 53.5 -24%

Restructurings $ 5.7 -37% -19% $ 29.4 -10%

Mega-deals $ 2.7 -34% 17% $ 14.7 -8%

ITO $ 14.0 -20% -8% $ 55.2 -16%

BPO $ 5.9 -5% -35% $ 27.7 -26%

Americas $ 5.6 -12% -34% $ 26.3 -34%

EMEA $ 12.5 -19% -3% $ 47.8 -5%

Asia Pacific $ 2.0 -1% -36% $ 8.8 -35%

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