European outsourcing on the rise

European outsourcing is on the increase, but deals in the US have slumped

More European firms are turning to outsourcing, with a 78 per cent year-on-year increase in major new deals worth more than €40m in the first half of 2007.

But globally, outsourcing contracts increased just six per cent, and there was a 50 per cent downturn in new deals in the US to only €6.3bn in value, compared to €12.4bn for the same six-month period in 2006, according to consultancy TPI International’s latest Quarterly Index report.

New European deals account for over half (54 per cent) of new outsourcing contracts signed worldwide, against 32 per cent last year and a five-year average of 38 per cent.

The latest growth worth €12.3bn of new business compares to a soft European outsourcing market last year.

‘Continental European countries have been relatively slow to adopt outsourcing, which makes it a market with huge potential growth,’ said Duncan Aitchison, managing director of TPI.

‘Five years ago, the region accounted for only 12 per cent of global outsourcing deal activity. Now, continental Europe has nearly trebled its share to 30 per cent.’

Aitchison says the slowdown in large global outsourcing agreements reflects changing priorities for some firms.

‘It is driven by the fact that offshoring to a wholly-owned captive operation, or tactical out-tasking of small, discrete processes, is currently considered an alternative to outsourcing by some client organisations looking for short-term cost savings,’ he said.

Some 44 per cent of new European contracts are mega-deals worth in excess of €800m and four out of five-mega deals awarded in Europe have been for network outsourcing.

Telecoms companies are climbing the ladder of global outsourcing providers with BT taking the number two position worldwide, up from number 13 last year.

The big six - Accenture, ACS, CSC, EDS, HP and IBM - continue to dominate the global market in terms of existing contracts, but have won only 10 per cent of mega-deals by value so far this year, compared with an average of 63 per cent over the last four years.

Financial services is outsourcing’s largest market, with 35 per cent of total contract value awarded by such organisations worldwide this year. The closest rival is telecoms at 19.7 per cent.