Fourth Quarter and Full Year 2013 ISG EMEA Outsourcing Index

Hosted by:

James Goodman,

Barclays Capital

20 January 2014

The ISG EMEA Outsourcing Index

Fourth Quarter and Full Year 2013

Market Data and Insights

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*Contracts with ACV ≥ €4M from the ISG Contracts Knowledgebase®

2

Covering the state of the outsourcing industry for EMEA commercial contracts.*

Welcome to the 45th Quarterly Outsourcing Index Review

Bernd SchaeferPartner

John KeppelPartner & President

Dr. David HowiePartner

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At a Glance

2013 Y/Y

Counts Change

1,155 2%

798 -5%

357 22%

24 -31%

790 8%

365 -9%

442 -10%

587 18%

126 -11%

DOUBLE-DIGIT GROWTH IN 4Q DEAL ACTIVITY,

BUT CONTRACT VALUES DOWN BY LIKE PERCENTAGE

2013 DEAL ACTIVITY SLIGHTLY HIGHER, BUT VALUES FALL, MIRRORING 4Q TREND

AFTER SEVERAL YEARS OF GROWTH, FINANCIAL SERVICES ACTIVITY SLOWS AND

MANUFACTURING DECLINES SHARPLY

ITO ACTIVITY UP, BUT BPO ACTIVITY RECEDES DUE TO LACK OF LARGE DEALS,

EMEA SEES RISE IN ACTIVITY WITH SMALLER DEAL SIZES,

BUT LACK OF LARGE DEALS IN AMERICAS LEADS TO DROP IN VALUE

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

ACV (€B)* Change Change ACV (€B)* Change

Global Market € 3.7 -12% -17% € 15.0 -18%

New Scope € 2.4 -16% -5% € 9.0 -27%

Restructurings € 1.3 -5% -32% € 6.0 -2%

Mega-relationships € 0.4 -52% -58% € 2.9 -38%

ITO € 3.0 8% -12% € 10.8 -8%

BPO € 0.7 -50% -32% € 4.2 -37%

Americas € 1.2 -23% -17% € 5.2 -26%

EMEA € 2.1 -5% -21% € 8.2 -6%

Asia Pacific € 0.4 -10% 15% € 1.6 -40%

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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

Global Market Contract Award Trends

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

€ 11.3€ 14.1€ 12.3€ 13.1€ 11.0€ 10.9€ 8.6€ 8.9€ 9.5€ 9.9

€ 3.7€ 4.2

€ 5.3€ 4.4€ 5.5€ 3.7

€ 4.7€ 3.3€ 4.2€ 3.1

€ 15.0

€ 18.3€ 17.6€ 17.6€ 16.5€ 14.6€ 13.3€ 12.2

€ 13.7€ 12.9

201312111009080706052004

1Q to 3Q ACV 4Q ACV

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€ 2.9

€ 4.6€ 5.2

€ 3.0€ 3.2€ 2.5

€ 9.0

€ 6.8€ 5.3

201320082004

€ 122€ 148€ 143

€ 44€ 45€ 44

€ 8€ 10€ 11

201320082004

2013 saw the continued dominance of contracting in the smallest ACV bands, and

average deal size trended down across all bands.

Global Market Contract Trends by Deal Size

Comparing Broader Market Contracting Awards (€B)*

Grouping in ACV Contract Size Bands

ACV(€B)* Contract Counts Average Contract Size

€4-31M €32-79M €80M +

24 31 36

68 70

57

1,063

673

482

201320082004

Contract Counts

60%

20%

20%

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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)*

Global Market New Scope & Restructuring Trends

New Scope 4Q and Full-Year ACV (€B)*

Restructuring 4Q and Full-Year CountsNew 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


$6.6 $9.4 $8.1 $9.0 $8.4 $8.3

$6.9 $5.6 $7.1 € 7.9

€ 2.4

€ 2.8€ 3.3

€ 3.0€ 4.4€ 2.5

€ 3.9

€ 2.5€ 3.0€ 2.4

€ 9.0

€ 12.2€ 11.5€ 12.1

€ 12.8

€ 10.9€ 10.8

€ 8.1

€ 10.1€ 10.3

201312111009080706052004

1Q to 3Q ACV 4Q ACV

€ 4.6€ 4.7€ 4.1€ 4.1€ 2.5€ 2.6€ 1.7

€ 3.3€ 2.4€ 2.0

€ 1.3€ 1.4€ 2.0€ 1.4

€ 1.2€ 1.1€ 0.8

€ 0.8€ 1.2

€ 0.7

€ 6.0€ 6.1€ 6.1€ 5.5

€ 3.7€ 3.7

€ 2.5

€ 4.1€ 3.6

€ 2.7

201312111009080706052004

1Q to 3Q ACV 4Q ACV

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Manufacturing stood out, with ACV off almost €2B from its prior 5-year average. Yet

Energy and Travel, Transport & Leisure performed close to their prior 5-year highs.

Global Market Industry Trends

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

€ 2.8

€ 4.3

€ 2.1€ 1.8

€ 1.6

€ 1.1€ 0.8

€ 0.5

€ -

€ 1

€ 2

€ 3

€ 4

€ 5

€ 6

Manufacturing

Financial

Services

Telecom &

Media

Energy Travel,

Transport,

Leisure

Healthcare &

Pharma

Business

Services

Retail

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

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ACV for fourth-quarter and full-year was down slightly Y/Y, yet contract counts at an

all-time high, up almost 18% from 2012.

EMEA 4Q and Full-Year ACV (€B)*

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

EMEA Contract Award Trends

€ 6.0€ 6.4€ 6.5€ 6.1€ 4.5

€ 6.4€ 4.0€ 3.3

€ 4.4€ 4.1

€ 2.1€ 2.3€ 3.0€ 2.7

€ 3.2€ 1.5

€ 1.8€ 1.6

€ 2.0€ 1.7

€ 8.2€ 8.7

€ 9.5€ 8.8

€ 7.8€ 7.9

€ 5.9€ 4.9

€ 6.5€ 5.7

201312111009080706052004

1Q to 3Q ACV 4Q ACV

€ 4.6

€ 3.6

€ 6.2

€ 2.0

€ 0

€ 2

€ 4

€ 6

€ 8

New Scope Restructuring ITO BPO

Prior 5 Year Range Avg of 5 Prior Years 2012 2013

EMEA 4Q and Full-Year Counts

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


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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)*

€ 1.4

€ 2.7

€ 0.9

€ 1.1

€ 1.1

€ 0.3

€ 0.5

€ 0.2

€ 0 € 1 € 2 € 3 € 4

Manufacturing

Financial Services

Telecom & Media

Energy

Travel, Transport,

Leisure

Healthcare & Pharma

Business Services

Retail

2012 2013

€ 2.65

€ 1.61

€ 1.39

€ 0.90

€ 0.41

€ 0.71

€ 0.35€ 0.16

€ -

€ 0.5

€ 1.0

€ 1.5

€ 2.0

€ 2.5

€ 3.0

€ 3.5

€ 4.0

€ 4.5

U.K. &

Ireland

DACH Nordics Benelux France Southern

Europe

Africa &

Middle

East

E. Europe

& Russia


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EMEA ITO ACV rose 11% for the year, driven by strong contracting activity. The 409

contracts awarded was a high water mark for the region.

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

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

EMEA ITO Contract Award Trends

EMEA ITO ACV ($B)* by Function

€ 4.5€ 4.3€ 4.8€ 4.9€ 3.8€ 4.8€ 3.2€ 2.2

€ 3.8€ 3.3

€ 1.7€ 1.3€ 2.3€ 2.4

€ 2.4€ 1.3

€ 0.9€ 1.2

€ 1.4€ 1.3

€ 6.2€ 5.6

€ 7.2€ 7.3€ 6.2

€ 4.6

409 348 385 320 332

182

201312111009080706052004

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

€ 1.4

€ 2.0

€ 1.5

€ 1.3

€ - € 0.5 € 1.0 € 1.5 € 2.0 € 2.5

Infrastructure

ADM

Network Services

ADM + Infrastructure

2012 2013

€ 2.0

€ 1.1

€ 0.8

€ 0.6

€ 1.0

€ 0.4

€ 0.2

€ 0.1

€ 0.0 € 0.5 € 1.0 € 1.5 € 2.0 € 2.5

Financial Services

Manufacturing

Energy

Telecom & Media

Travel, Transport, Leisure

Business Services

Healthcare & Pharma

Retail

2012 2013

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Despite increased contract activity, BPO ACV fell almost 40% as large deals

disappeared from the market.

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

EMEA BPO Full-Year ACV ($B)* by Industry

EMEA BPO Contract Award Trends

EMEA BPO ACV ($B)* by Function

€ 0.26

€ 0.55

€ 0.30

€ 0.20

€ 0.07

€ 0.17

€ 0.27

€ 0.03

€ 0.04

€ 0.07

€ - € 0.3 € 0.5 € 0.8 € 1.0 € 1.3 € 1.5

Facilities Mgmt

Industry-Specific

F&A

HRO

R&D/KPO

Multi-Process

Contact Centers

Procurement

Supply Chain Mgmt

Document Mgmt

2012 2013

€ 1.5€ 2.2

€ 1.7€ 1.2€ 0.8

€ 1.6€ 0.8€ 1.2

€ 0.7€ 0.8

€ 0.4€ 0.9

€ 0.7

€ 0.3€ 0.8€ 0.3

€ 0.9€ 0.3€ 0.7€ 0.4

€ 1.9€ 3.1

€ 2.3

€ 1.5€ 1.6

€ 1.2

178 150 150 122

99 69

201312111009080706052004

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

€ 0.66

€ 0.32

€ 0.28

€ 0.27

€ 0.06

€ 0.09

€ 0.10

€ 0.16

€ - € 0.5 € 1.0 € 1.5

Financial Services

Energy

Manufacturing

Telecom & Media

Retail

Business Services

Healthcare & Pharma

Travel, Transport, Leisure

2012 2013

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Aon Hewitt

Capita

Communisis

Emcor

G4S

Genpact

GP Strategies

Innovation Group

Interserve

Sodexho Alliance

TCS

WEX

WNS

Xchanging

Xerox

AT&T

BT

CSC

Deutsche Telekom

EVRY

France Telecom

HP

IBM

iGATE

Tech Mahindra

Quindell

Swisscom

Tata

Tieto

Wipro

Accenture

Atos

Capgemini

CGI

HCL

Infosys

In Top 20 for Both ITO and BPO

2013 Top 20 Outsourcing Service Providers in EMEA

Note: Service providers in alphabetical order; no rankings implied.

Placements based on 2013 ACV commercial contract awards sourced from ISG Contracts Knowledgebase ®.

In Top for ITO Only In Top for BPO Only

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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%.

Americas 4Q and Full-Year ACV (€B)*

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

Americas Contract Award Trends

Americas 4Q and Full-Year Counts

€ 4.0€ 5.5€ 4.6

€ 6.2€ 4.9

€ 3.5€ 3.3€ 4.6€ 4.4€ 4.5

€ 1.2

€ 1.5€ 1.8

€ 0.9€ 1.8

€ 1.4€ 2.2€ 1.5€ 1.6€ 1.2

€ 5.2

€ 7.0€ 6.4

€ 7.1€ 6.7

€ 4.9€ 5.5€ 6.1€ 6.0€ 5.7

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


€ 3.1

€ 2.2

€ 3.3

€ 1.9

€ 0

€ 1

€ 2

€ 3

€ 4

€ 5

€ 6



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€ 0.21

€ 0.12€ 0.13

€ 0.16

€ 0.0

€ 0.1

€ 0.2

€ 0.3

€ 0.4

€ 0.5

Canada Brazil Mexico Other

LatAm


€ 4.6

€ -

€ 1

€ 2

€ 3

€ 4

€ 5

€ 6

€ 7

U.S.

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)*

€ 1.14

€ 1.06

€ 0.99

€ 0.71

€ 0.30

€ 0.31

€ 0.47

€ 0.23

€ 0 € 1 € 2 € 3

Manufacturing

Financial Services

Telecom & Media

Healthcare & Pharma

Business Services

Retail

Energy

Travel, Transport,

Leisure

2012 2013

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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

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


€ 1.1

€ 2.1

€ 1.2€ 0.9

€ 1.6€ 1.0

€ 1.3€ 0.9

€ 0.6

€ 1.3

€ 0.4

€ 0.5

€ 0.4€ 0.8

€ 0.5

€ 0.7€ 0.7

€ 0.3€ 0.6

€ 0.3

€ 1.5

€ 2.6

€ 1.6€ 1.7

€ 2.1

€ 1.7€ 2.0

€ 1.2€ 1.2

€ 1.5

201312111009080706052004

1Q to 3Q ACV 4Q ACV

€ 1.27

€ 0.29

€ 1.29

€ 0.27€ 0.0

€ 0.5

€ 1.0

€ 1.5

€ 2.0

€ 2.5



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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)*

€ 0.32

€ 0.49

€ 0.26

€ 0.15

€ 0.31

€ 0.03€ -

€ 0.2

€ 0.4

€ 0.6

€ 0.8

€ 1.0

€ 1.2

India and

South Asia

ANZ Greater

China

ASEAN Japan South Korea


€ 0.18

€ 0.22

€ 0.52

€ 0.05

€ 0.26

€ 0.17

€ 0.02

€ 0.13

€ - € 0.3 € 0.5 € 0.8 € 1.0

Telecom & Media

Manufacturing

Financial Services

Business Services

Travel, Transport,

Leisure

Energy

Retail

Healthcare &

Pharma

2012 2013

Special Topic for Fourth Quarter 2013

John KeppelPartner 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

ProviderCompetition Up

Rise of theSmall Deal

Deal TermDown

Unit CostDrops

Financial Servicesand ManufacturingNorthern Europe

and U.S. RegionsLargest Western G-2000 Companies

1%

15%

30%

Americas EMEA Asia Pacific

Growth in G-2000 Sourcing

from 5 Years Ago

SIAM

ProviderClient

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 EMEA.

� 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 €8M.

� 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 3 - 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

summarymarket

outlookmarket

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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]

blog.isg-one.com

► Denise Colgan

Marketing Director, EMEA, ISG

+44 1737 371523

[email protected]

► Louise Fernley

Cohn & Wolfe for ISG

+44 207 331 5365

[email protected]

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 ≥ €20M 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 € 16.0 -16% -18% € 66.3 -20%

New Scope € 11.5 -3% -17% € 42.8 -24%

Restructurings € 4.5 -37% -19% € 23.5 -10%

Mega-deals € 2.2 -34% 17% € 11.7 -8%

ITO € 11.2 -20% -8% € 44.2 -16%

BPO € 4.8 -5% -35% € 22.2 -26%

Americas € 4.4 -12% -34% € 21.0 -34%

EMEA € 10.0 -19% -3% € 38.3 -5%

Asia Pacific € 1.6 -1% -36% € 7.0 -35%

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