Sourcing advisory firm TPI says that the €28 billion of contracts awarded by European companies last year is more than double the value in 2002.
"The equalisation between the European and US outsourcing markets comes through dramatic growth in Europe, not any significant decline in outsourcing in the Americas," said Duncan Aitchison, Managing Director, International with TPI. "European companies realise that they cannot continue to compete effectively on a global scale without utilising the increased efficiency and flexibility they can gain through outsourcing."
Looking at individual European countries, TPI found that the UK represented 20% (€11.5 billion) of the total worldwide value of major outsourcing contracts in 2004 (those worth over €40 million), and remains the largest country market for outsourcing after the US. However, outsourcing in Germany is expanding rapidly, and at 12.5% is the third largest country market.
Just over €7 billion (almost £5 billion) of major outsourcing contracts have been awarded by German companies in the last 12 months, a 220% increase on 2003 and 1,000% on 2001. The leading providers in Germany are T-Systems, IBM, HP and Siemens.
TPI's research reveals that the value of major outsourcing contracts awarded last year was a record high of €58 billion worldwide. Of the total, 67% was information technology outsourcing (ITO) and 33% business process outsourcing (BPO), whereby companies engage third parties to perform functions such as finance and accounting, procurement, customer relationship management and human resources processing. BPO expanded by 50% as a proportion of major contracts last year, from 22% in 2003.
"European outsourcing is likely to increase yet again this year," said Aitchison. "We expect BPO to continue to gain in popularity and for ITO's lead to gradually narrow".
Offshore outsourcing is also a growing aspect of the contracts awarded. According to TPI, 40% of the contracts awarded in 2004 on which TPI advised contained an offshore element.
"More and more companies, particularly the larger companies, are moving towards what we term 'global service delivery' in which they buy services provided in several different locations internationally through a single contract," said Aitchison. "In this way they enjoy 24/7 service delivery and are able to ensure that each element of the service is performed wherever it can be done most efficiently and effectively."
