Global Sourcing Industry Recovers Slightly in Q3 But Braces for Year-end Slowdown, New Findings from Everest Group

• Global sourcing activity picked up in Q3 2020 as the initial effects of the pandemic temporarily eased and countries reopened for business.

• The industry is bracing for another slowdown as the second wave of the COVID-19 pandemic takes hold across the world.

• Leading global IT, business process (BP) and engineering services providers saw some growth in Q3 as demand for digital transformation and cost optimization increased dramatically.

Everest Group reports that global sourcing activity picked up in Q3 2020 as the initial effects of the pandemic temporarily eased and countries reopened for business. However, the industry is bracing for another slowdown as the second wave of the COVID-19 pandemic takes hold across the world.

Leading global IT, business process (BP) and engineering services providers saw some growth in Q3 as demand for digital transformation and cost optimization increased dramatically and supply and demand disruptions eased for a majority of players. Trade agreements, tax cuts and subsidies by governments across countries also provided some relief for both enterprises and service providers.

Q3 saw the number of outsourcing transactions increase by 8%, the setups and expansion of Global Business Services centers increase by 41%, and onshore setups almost double. Although acquisition activity remained the same, alliance activities increased significantly from 51 to 61.

However, despite the recovery, delays in renewals of new projects and cancellations of ongoing outsourcing projects have posed serious challenges to service providers, and many opted for mass layoffs to maintain desirable operating margins. Challenges continue to loom for global services providers as economic instability and uncertainty about the second wave of COVID-19 are anticipated to mount over the next quarter and into the early part of 2021.

Service providers are exploring cost-saving opportunities in the short and long term. For example, some companies are looking to save costs by closing selected centers and allowing a part of the workforce to work from home permanently.

These findings and more are shared in Everest Group’s Market Vista: Q42020 report. The Market Vista™ report highlights the key trends and developments in the fast-evolving global offshoring and outsourcing market. The study captures the key developments across outsourcing transaction trends, health of GBS centers, location risks and opportunities and service provider developments.

Highlights from the Market Vista: Q4 2020 Report:

• Medium-term deals are witnessing an increasing traction since the start of the year, owing to enterprises’ resistance to investing in large-scale transformation. Also, demand for systems integration services is rising as enterprises are going for applications and vendor portfolio consolidation.

• Re-opening of businesses and reduction in restrictions led to recovery in the overall location activity, primarily driven by the Central and Eastern Europe (CEE) and Rest of Northern Europe (RONE) regions. Also, activity in onshore locations increased significantly for enterprises driven by technology and communications firms establishing Engineering, Research and Development (ER&D) centers in the U.S. and United Kingdom.

• Deals for Banking, Financial Services and Insurance (BFSI), government, and technology & communications verticals were the highest among all industry verticals.

• The consolidated revenue for both offshore-heritage and global providers declined 5% in Q2 as compared to Q1 2020 and reduced by 2% compared to Q2 2019.

For more information, please visit www.EverestGroup.com.