Service providers see declining revenues and margins; cybersecurity, desktop and mobility services gain traction as enterprises adapt to work-from-home
Q2 results are in, and Everest Group reports the Global Sourcing industry is suffering from the negative business impacts of the COVID-19 pandemic. Two trends illustrate this: First, the worldwide setup of Global Business Services (GBS) centers, also known as Global In-house Centers (GICs), fell sharply (more than 48%) as offshore/nearshore activity dropped 46% and onshore setups dropped 52% for the quarter. Second, although overall outsourcing activity ticked upward slightly (2%) for the quarter based on the number of deals signed, service providers reported a decline in both revenues and operating margins.
In offshore and nearshore locations, GBS market activity declined from 44 in Q1 to 24 new setups in Q2. In onshore locations, GBS market activity decreased from 33 new setups in Q1 to 16 in Q1 2020. New center setup activity in India reached an all-time low, after seeing only 8 new setups in Q2 as compared to 16 in the previous quarter.
Based on financial reports from Q1 2020, the consolidated revenue and operating margin of service providers witnessed a decline, -1.5% and -21% respectively, in comparison to the previous quarter.
“The global services industry is certainly feeling the pain of the economic downturn caused by COVID-19,” said H. Karthik, partner at Everest Group. “Enterprises and service providers functioning in sectors such as travel and hospitality, aviation, retail, automotive and manufacturing sectors have been hit the hardest in this quarter due to extremely low demand and supply constraints. Further, delays in new project renewals and cancellations of ongoing outsourcing projects have been witnessed in a number of cases. This has been followed by cost optimization measures that included layoffs for several enterprises and service providers.
“However, governments across the world have announced stimulus packages and relief measures,” continued Karthik “The G20, for instance pledged to infuse over US$5 trillion to support economies and protect workers and businesses. This infusion of support provides hope for recovery, and we continue to expect that significant containment in the spread of the virus will lead to further recovery of sourcing activity as lockdowns and travel restrictions can be eased.”
These global sourcing trends are detailed in Everest Group’s recently released Market Vista™: Q3 2020 report. The report shines a spotlight on transaction trends and outsourcing deals, GBS-related developments, offshoring dynamics, location risks and opportunities and key service provider developments.
***WEBINAR, Thursday, September 10***
Everest Group is hosting a complimentary 60-minute webinar, “Impact of COVID-19 Beyond WFH: The Future of Delivery and Locations Strategies.” Everest Group experts will provide a fact-based view of the already-visible effects of the pandemic and discuss the implications of these developments on future delivery and locations strategies, including key changes to delivery portfolios, trends in onshoring versus offshoring, locations portfolio consolidation versus diversification, rise in large scale hubs versus small scale centers, and adoption of a remote or work-from-home delivery model.
The live webinar will be held on Thursday, September 10, at 9 am CDT. Register here.
Highlights of the Market Vista Q3 Report:
About Everest Group
Everest Group is a consulting and research firm focused on strategic IT, business services, engineering services, and sourcing. Our clients include leading global enterprises, service providers, and investors. Through our research-informed insights and deep experience, we guide clients in their journeys to achieve heightened operational and financial performance, accelerated value delivery, and high-impact business outcomes. Details and in-depth content are available at http://www.everestgrp.com/.