Lessons Learned from the 2011 ISG Momentum Geography Report

Every region of the world experienced significant outsourcing developments in 2011. The ISG Momentum 2011 Market Trends & Insights Geography Report found that global developments are increasingly connected. The natural and nuclear disasters in Japan, political upheaval from the Arab Spring in the Middle East and Africa and the continuing debt drama throughout the euro zone all impacted outsourcing decision-making far beyond those regions.

Here are the Top 5 highlights from the report:

1. The continental divide is growing. In 2010, for the first time, companies in Europe spent more on outsourcing than those in North America. That trend continued in 2011, as spending in the EMEA region rose four percent, led by stronger growth in Europe, while outsourcing spending in North America fell six percent and is now at the lowest level since 2006. Spending in the Asia-Pacific region reached a record high following nine percent growth.

2.  Currents are changing for offshoring. Long-held attitudes and trends toward offshoring are changing, in both directions. During 2011 clients facing contract negotiations around the world generally were more open to offshoring. However, clients in three of the largest markets – the U.S., U.K. and Canada – bucked this trend. Several high-profile U.S. and U.K. companies repatriated work that had previously been offshored. U.S. and Canadian companies exhibited growing preferences to keep outsourced work within their countries, often because of sensitivity about data security or offshoring in general.

3. The fast-changing world slows down decision making. ISG has observed that the current events that dominated world news in 2011 are also causing companies to slow their outsourcing decisions. Companies throughout Europe, and those around the world who do business there, are moving cautiously while the Greek debt crisis, the future of the euro and other macroeconomic issues play out. The natural and nuclear disasters in Japan had a major effect on business operations and planning. The Middle East and North Africa had been gaining ground as an outsourcing service destination, but, following the Arab Spring, businesses are waiting to make major commitments to the region until the political and business environments stabilize. Outsourcing decision making also slowed in the large banking and diversified financials industries because executives were highly focused on global financial conditions and preparing for the new capital requirements in the Basel III agreement that will take effect around the world.

4.  Clients want more without paying more. Clients around the world are renegotiating existing contracts, converting sole-source engagements into multisource arrangements and asking service providers for more services and lower rates. While this type of activity is typically associated with experienced outsourcing clients, it is occurring in mature and emerging outsourcing markets alike.

5.  Change rearranges the top. The United States surpassed India in 2011 as the top-ranked country on the ISG Momentum Outsourcing Viability Index (OVI).™ Though costs and labor competition are rising in India, it remains a leading outsourcing destination, ranking second worldwide on this measure. Rising costs also caused the Philippines to slide in the OVI, from fourth to seventh. Other changes in the top 10 include Canada rising two positions to fifth and Egypt falling from 10 to 16. The OVI ranks 51 countries on six dimensions that measure the country’s suitability to support outsourcing.

The biggest takeaway from the ISG Momentum 2011 Market Trends & Insights Geography Report is that outsourcing feels the impact of political and economic developments beyond national borders. The complete report includes regional overviews plus individual chapters on 21 countries that discuss market developments and drivers in detail. To learn more about it click here or contact us.

About the author

Paul Reynolds leads Momentum, a division of ISG that provides research services to help service providers better target, win and retain business. Paul has 25 years of market research experience with specific expertise in methodology development, data analytics and research process design. Having found many service providers’ Advisor Relations functions to lack appropriate analytics, Paul is working to develop innovative new approaches that allow for data-driven programs based on the unique needs of each client. His approach benefits Advisor Relations, go-to-market functions, sales, strategy, marketing, and market/competitive intelligence teams.