BLOG POST

Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

A shrinking in traditional outsourcing deal volumes since the United Kingdom's EU membership referendum vote on June 23, 2016, is being partially attributed to business caution following the “Brexit” decision.

According to consultants ISG, the traditional sourcing market in the UK pre-Brexit referendum had a deal volume of circa $900 million per quarter. However, the UK outsourcing market has only achieved this level of activity in one quarter since the referendum.

Other surveys are also finding that the Brexit decision is having a detrimental effect on business investment, which has been described as “subdued.” Among other reasons, this decline has been attributed to corporations holding back investment decisions pending greater certainty following the nature of any agreement reached between the United Kingdom and the European Union, as business confidence is at its lowest for a number of years.

This decline over the past two-plus years in the United Kingdom is in contrast to other markets, most of which have seen steady or increased outsourcing volumes over the same period. However, a bright spot for the UK sourcing and technology market is the continued increase of spending on “as-a-service” arrangements, including Infrastructure-as-a-Service (more than 30% up) and Software-as-a-Service (17% up), investment which achieved new records in Q3 2018. This trend suggests that customers are still making investment decisions; however, they may be attracted to the flexibility provided by, and the lack of significant investment required by, “as-a-service” arrangements in these uncertain pre-Brexit times.

Additionally, a second recent highlight for the UK market is that Q3 2018 traditional outsourcing spending actually saw an increase (year on year) compared to Q3 2017, although Q3 2017 was admittedly a slow quarter.

Perhaps the next significant development in the market will be a post-Brexit exit agreement spike in activity, as corporations look to make the enterprise investments they have been putting off pending certainty as to the nature and timing of Brexit itself. We'll continue monitoring the market to keep you updated on any additional meaningful trends.