European outsourcing slumps at the end of 2008 despite a record year

Aitchison: Tough times ahead for outsourcers

A record number of outsourcing contracts were signed in Europe during 2008 - despite a 50 per cent fall in the value of deals in the second half of the year, according to researcher TPI.

Worldwide, outsourcing deals worth nearly €72bn were agreed last year, more than the total value in 2007. The number of contracts in Europe was up 17 per cent year on year to a record high – and for the first time the region outstripped the US with 55 per cent of deals signed in Europe by value, compared to just 32 per cent in the US. The number of European deals hit 271, compared to 243 across the Atlantic.

But the good times for outsourcers are unlikely to last – business in Europe fell by 50 per cent in the second half of the year, and the slowdown is likely to continue, according to TPI president Duncan Aitchison.

"The strong results for Europe were achieved primarily on the back of a strong first half and in particular through the level of mega-deal activity in the region, which awarded two-thirds of the world's $1bn-plus contracts last year," he said.

"That said, the value of contracts awarded in Europe dropped by almost 50 per cent in the second half of the year. The weakness we noted in the third quarter of 2008 continued into the fourth quarter, and looks likely to remain into the first part of 2009."

Aitchison explained that the outsourcing market will have to rely on smaller deals to maintain its growth in 2009.

"The outsourcing industry offers an early indicator of renewed confidence in the stability and growth of economic markets. When large outsourcing contract awards increase, it often means that businesses are realigning their support operations as part of their growth agenda," he said.

"While market indicators do not point to a near-term return in demand for large complex outsourcing arrangements, we believe that there will be a steady flow of smaller, more tactical outsourcing contracts signed globally.

"Companies are searching for ways to reduce their operating expenses quickly and outsourcing can be a valuable tool with which to effectively weather the economic storms of 2009."