News Column

Outsourcing Highest in Telecoms, But Media Shows Greatest Growth

July 16, 2014

By a News Reporter-Staff News Editor at Telecommunications Weekly -- Telecommunications remains the leading global industry for outsourcing, but the media sector saw the greatest growth in outsourcing activity in the last year, new research from Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company, has found.

Media outsourcing spending by annual contract value (ACV) rose $478 million, or 26 percent, in 2013, placing it well ahead of spending growth in the hotels, restaurants and leisure sector, where ACV rose by $155 million, or 53 percent.

Telecommunications remains the undisputed champion of outsourcing, with ACV of $21.6 billion, the largest number of contract awards (104), the highest average total contract value ($15.5 million), the highest percentage of companies that outsource (82 percent), and the highest average company spend by ACV ($393 million) in the last year. Yet, the industry saw its ACV drop by $862 million, or 4 percent, in 2013, second only to software and services (down $927 million or 47 percent) among industries that saw the largest declines in ACV.

These findings are included in the 2014 Momentum() Market Trends & Insights Vertical Report, which includes detailed data and insights on outsourcing activity among the world's 2,000 largest public companies in 27 vertical industries.

"Media companies are expanding the scope of their activity beyond ITO and are now using outsourcing to support their strategic repositioning in response to the digital disruption in the industry," said ISG Chief Research Officer Paul Reynolds. "Growth in the hotels, restaurants and leisure vertical is coming from a small base and is motivated by the desire to increase speed of innovation. In contrast, telecommunications services remains one of the most sophisticated and mature markets, and much of the outsourcing activity there involves network sharing and support agreements among telecommunications providers themselves."

There were equal amounts of volatility (double-digit ACV swings in 11 of the 27 industries) and stability (12 of the 27 industries saw ACV changes of 5 percent or less) in outsourcing activity in the last year. Overall, losers (those with declining ACV) outpaced winners (those with increasing ACV) by a margin of 2 to 1, with an overall average decline in ACV of 4 percent among the 27 industries studied.

Spending was subdued in most verticals as clients took advantage of intense service provider competition and cheaper cloud computing and X-as-a-Service (e.g. Software-as-a-Service, Infrastructure-as-a-Service, Business Process-as-a-Service, etc.) offerings to reduce their service delivery costs.

While it was challenging for service providers to grow ACV in most verticals, outsourcing penetration overall continued to rise. Currently, 45 percent of the world's largest public companies have an active outsourcing contract, up from 40 percent in 2010.

Keywords for this news article include: Software, Telecommunications, Information Services Group Inc..

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Source: Telecommunications Weekly

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