Outsourcing sees its quietest quarter for five years

With UK and German markets particularly soporific

UK sees only half the contract value experienced last year

The total value of outsourcing activity in Europe is the lowest it has been for the past five years, according to a report released today by consultancy TPI.

Outsourcing covers a number of business functions as well as IT but most of them are underpinned by some IT elements.

The EMEA TPI index, which measures commercial outsourcing contracts valued at £17m or more, showed that 57 contracts worth a total of £4bn were awarded in EMEA in the third quarter. This is a declined of eight per cent quarter on quarter and 10 per cent year on year.

Duncan Aitchison, president and partner of TPI EMEA, said: "This is only one quarter and not necessarily indicative of a trend within the wider economy, there is stabilisation and signs of growth, but many of the contracts included took months to negotiate before they were signed. There is a time lag. That’s not to say the market isn’t still nervous. It is.”

EMEA IT specific outsourcing saw its third consecutive quarter of decline, with just over £2.6bn in contract value awarded in the third quarter, down 35 per cent year on year.

The UK and Germany continue to show a decline in outsourcing, having only awarded half of the total contract value this year to date compared with the same period in 2009. However, Germany is expected to see a substantial increase in outsourcing activity by the end of the year.

Aitchison said: “There are different reasons for the decline in the UK and Germany. The UK is the most mature outsourcing market in Europe and although contracts are re-signed, there is the absence of big new change contracts. Germany is just a bit slower to pick up. Again there is a time lag here.”

Total contract value for business process outsourcing (BPO) this year to date was £3.7bn in EMEA, an increase of 19 per cent compared with the first three quarters last year and largely driven by the award of a few, larger contracts.

Within BPO, most activity in EMEA is centred on financial services operations outsourcing, which has performed fairly consistently for the past three years. Industry-specific BPO is relatively strong in the region while the more traditional BPO areas such as human resources, finance and accounting and contact centre outsourcing remaining slow.