European firms jump on outsourcing bandwagon

Demand for outsourcing in Europe increased "dramatically" in the first half of 2007 compared with the same period last year, research reveals.

The latest Quarterly Index from consultant TPI found that the total value of new (as opposed to renewed or restructured) outsourcing contracts in the €40m-plus bracket, where most significant outsourcing activity occurs, is up a whopping 78 per cent on 2006.

This €12.3bn of new business represents a "significant recovery" from the relatively soft outsourcing market experienced in Europe last year, marking a 23 per cent increase on an average €10bn of new contracts added in each of the previous five years.

Europe's record on new deals this year is so impressive that it accounts for over half of new outsourcing contracts signed globally, against 32 per cent last year and a five-year average of 38 per cent.

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

"Five years ago the region accounted for only 12 per cent of global outsourcing deal activity, and only Germany, France and The Netherlands managed to achieve above a one per cent share.

"Continental Europe has nearly trebled its share to 30 per cent, with Belgium, Denmark, Norway, Finland, Switzerland and Italy each representing over one per cent of the global market."

Aitchison noted that Europe's buoyancy in this sector has been driven in particular by a concentration of "mega deals" in the region.

These deals, each worth in excess of €8bn, represent 44 per cent of the new business to hit the European outsourcing market so far in 2007. Over two thirds of the €7.8bn in mega deals awarded globally this year have been in Europe.

This compares with an average of 39 per cent over the past five years and gives Europe its greatest ever share of this top end of the outsourcing market.

Four of the five mega deals awarded in Europe this year have been for network outsourcing, as have been five of the eight mega deals struck worldwide.

Growth in this area is propelling telecoms companies up the hierarchy of global outsourcing providers, TPI reported.

Ranked by share of contract awards worth over €40m (including restructurings) BT now takes the number two position worldwide, up from 13 last year.

Alcatel-Lucent and Ericsson take the number five and six spots, up from 15 and 11 respectively, and AT&T enters the top 15 for the first time at number 10.

The global 'Big Six' (Accenture, ACS, CSC, EDS, HP and IBM), which continue to dominate the global outsourcing market in terms of existing contracts, 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 past four years.