The Asia Pacific outsourcing market, ever volatile because of its relatively small size, had a rocky 2015, with annual contract value down sharply against an especially strong prior year, according to the latest data from Information Services Group (ISG), a 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, found the region had total ACV of US$2.2 billion in 2015, down 33 percent from the prior year, its lowest annual level since 2006. Fourth-quarter ACV, at US$490 million, was also down by a third (34 percent).
In 2015, Asia Pacific had no quarters exceeding US$600 million in ACV, compared with three such quarters 2014. In only one quarter were there more than 40 contracts signed, compared to three such quarters in the prior year.
In a global market trending toward more contracts of shorter duration and smaller value, Asia Pacific saw its volume decline 8 percent for the year, to 157 contracts, an annual figure, however, that is still the region’s third-highest ever.
Both new scope and restructured contracts saw drops in value and volume, and results overall were held back by the lack of large ITO deals, with ACV coming in at its lowest level since 2006. Most of the ITO activity in 2015 came from smaller applications work. BPO, meanwhile, rose 14 percent off a small base, with most deals coming in contact center and industry-specific work.
“With its strong performances in 2014, Asia Pacific faced a tough comparison in 2015, a situation further exacerbated by the region’s sluggish start,” said John Keppel, president, ISG EMEA and Asia. “The past year resembles the years of 2013 and 2011, when the lack of a large quarter suppressed annual results.”
Despite recent market volatility, the longer-term trend in Asia Pacific is one of slow and steady growth. The sluggishness of 2011, 2013 and 2015 was offset by strong performances in 2012 and 2014, resulting in an overall upward trajectory that places the region’s current market size at $14.4 billion.
Among major markets, Australia-New Zealand turned in its second-lowest full-year ACV in the last decade, while India saw its ACV drop 27 percent, even with a 6 percent rise in deal counts.
Likewise, the region’s largest industries – manufacturing and financial services – saw their ACV plummet by 62 percent and 39 percent, respectively, and contract counts decline. Energy was a notable bright spot, with a 32 percent increase in ACV over 2014 and a record number of awards. Telecom and media’s ACV fell 22 percent, though contract volume edged up.
ISG said it expects a tepid start to 2016, with global ACV growth only in the low single digits over the first two quarters compared with the weak first half of 2015. “We expect activity to pick up across all regions in the second half,” Keppel said.
“In the Asia Pacific region, we’re seeing an uptick in sourcing interest after several slow years, and we know of a few large deals in the industry pipeline, but they may take some time to develop,” said Keppel.
