Outsourcing contracts worth about $21bn due to expire this year with most up for renegotiation

The Information Services Group (ISG), a technology advisory company, said that the number of outsourcing contract renegotiations could reach an "all time high" after identifying 886 active contracts it said are due to expire in 2013. ISG said it expects outsourcing contracts worth $15.5bn to be up for renegotiation this year.

Shorter lengths of contracts, renegotiations of contracts during their term and the fact that buyers are "more willing" to remove services from the scope of incumbent providers and give that work to new suppliers are the three main factors behind the 27% rise in expiring outsourcing contracts recorded in 2012, ISG said.

According to a separate report by ISG, the Global ISG Outsourcing Index, (26-page / 1.97MB PDF) the annual contract value (ACV) of IT outsourcing contracts concluded across the world during the second quarter of 2013 was $2.3bn. The figure is 34% down on the same three months in 2012 and 26% down on the ACV recorded for IT outsourcing contracts awarded in the first quarter of this year.

For the first half of 2013, the ACV of IT outsourcing contracts awarded was $5.3bn, down on $7.2bn – the average for first half-year ACV figures for the previous five years. The number of IT outsourcing contracts that ISG has specifically advised on that have a "cloud component" was 23% in 2012, up from 1% in 2009.

The total ACV of outsourcing contracts generally awarded in Europe, the Middle East and Africa (EMEA) during the second quarter of 2013 was $1.9bn, down 23% on the same period last year and 16% on the first three months of this year. The half-year ACV for EMEA outsourcing contracts awarded was $4.2bn, down 15% on the same six months in 2012.

Figures for manufacturing and financial services industry outsourcing were well below the five-year average, although the ACV for outsourcing contracts awarded for the half-year to-date in the energy and the healthcare & pharmaceuticals industries was above their industry average, according to the Global ISG Outsourcing Index report.

Separate figures published by research company Gartner forecasts that the global IT outsourcing market will reach $288bn in 2013, a growth of 2.8% in US dollar terms from the 2012 market value.

"Mature Asia/Pacific and Western Europe are the regions where the outlook is most tempered, partly due to currency but also reflective of our view that 2013 is likely to be similar to 2012 in these regions," Bryan Britz, research vice president at Gartner, said in a statement.

"Constrained IT budgets, an evolving ITO delivery model, economic conditions and cost-focused buyers are limiting the growth potential of the ITO market," he added.

Multinationals' expansion into the Asia/Pacifc, Latin American and Greater China regions will help drive better growth in these IT outsourcing market, Garter said. The markets in those areas will all grow by more than 13%, with growing businesses new to IT buying as well as "fertile economic conditions" also drivers of the growth, it added.