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COVID-19 pulls down global sourcing market down by 5% in Q2: ISG Index

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Mumbai: Global sourcing slowed dramatically in the second quarter, as enterprises sharply reduced managed services spending to contend with the impacts of the COVID-19 pandemic according to an industry report by global advisory firm, Information Services Group. Data from the ISG Index shows that annual contract value for Q2 for the combined global market (both as-a-service and managed services) declined 5% to $13.2 billion. Cloud-based as-a-service sourcing, on the other hand, was up 7%t, to $7.2 billion.

“In line with our prediction last quarter, the managed services market was off 16 percent as enterprises reined in operating expenses in the face of a pandemic-related slowdown in business activity,” said Steve Hall, partner and president of ISG. “As-a-service spending did a bit better than we expected, bolstered by IaaS growth as many enterprises accelerated their infrastructure investments to support work-from-home needs. However, the economic shock of the pandemic among small to medium-sized businesses, in particular, resulted in a decline in SaaS, although demand for SaaS-based collaboration tools helped moderate the slowdown.”

ISG is forecasting slight sequential growth for the combined global market in the third and fourth quarters of 2020. For the full year, the firm is projecting the managed services market will be down 7.5%, slightly more than the 7% decline it forecasted for 2020 in the first quarter.

“Looking ahead to the final two quarters of 2020, we expect the volume of larger deals to be down as enterprises focus more in the near term on business resiliency and operating efficiency than on broad-based digital transformation,” said Hall.

Almost all the decline in the quarter was due to a double-digit drop-off in managed services spending, according to ISG. The annual contract value for managed services fell 16%, to $6 billion, as the number of contracts in the space dropped 11% to 445, versus the prior year. Contract value also was smaller; the number of contacts valued at more than $50 million per year was down by half versus the first quarter of 2020.

Within managed services, information technology outsourcing (ITO) declined 10%, to $4.8 billion, and business process outsourcing (BPO) was off 34%, to $1.2 billion.

The growth in the cloud market came entirely from the infrastructure-as-a-service (IaaS) space, which rose 10.5% to $5.4 billion. Even so, this was the slowest quarterly growth for IaaS since the firm started reporting on the segment in 2015, it said. Software-as-a-service, meanwhile, declined 2% versus the prior year, to $1.8 billion.

The Americas was the only region to show growth in the second quarter of 2020, although it was helped by a favorable comparison to a weak second quarter last year, said the firm. Combined market ACV in Asia Pacific slumped 24% versus the prior year, to $1.9 billion, it said.

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