Channel Register

Original URL: http://www.channelregister.co.uk/2007/07/13/outsourcing_demand_rises/

Europe goes mad over outsourcing

By OUT-LAW.COM
Published Friday 13th July 2007 09:36 GMT

Demand for outsourcing in Europe has increased dramatically in the first half of 2007, compared with the same period last year, according to the latest Quarterly Index from labour sourcing advisers TPI.

The total value of new outsourcing contracts in the €40m plus bracket, where most significant outsourcing activity occurs, is up 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, and is a 23 per cent increase on an average €10bn of new contracts added in each of the previous five years.

So impressive is Europe's record on new deals this year that it accounts for over half (54 per cent) 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 twelve per cent of global outsourcing deal activity, and only Germany, France and the Netherlands managed to achieve above a one per cent share."

"Now, 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," he said.

Europe's buoyancy has been driven in particular by a concentration of "mega deals" in the region. These deals, each worth in excess of €800,000m, represent 44 per cent of the new business to hit the European outsourcing market so far in 2007.

Moreover, of €7.8bn in mega deals awarded globally this year, over two thirds (68 per cent) have been in Europe, which compares with an average of 39 per cent over the last 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 indeed have been five of the eight mega deals struck worldwide, with growth in this area propelling telecoms companies up the hierarchy of global outsourcing providers. Ranked by their share of contract awards worth over €40m (including restructurings), BT now takes the number two position worldwide, up from number 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), who 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 last four years.

The Big Five Europe (Atos Origin, BT, Capgemini, Siemens and T-Systems), who dominate ongoing outsourcing service provision in Europe, have won 27 per cent of mega deals, compared with only 16 per cent over the last five years, reflecting Europe's increasing importance at the top end of the global outsourcing market.

In the broader market of deals over €40m, the "big six" maintain more of a dominance, at 41 per cent, albeit they have witnessed a 22 per cent decline in their share this year, compared with the last four years. The "big five" have a 13 per cent share of this same market, down 12 per cent on their four-year average.

Copyright © 2007, OUT-LAW.com (http://www.out-law.com/)

OUT-LAW.COM is part of international law firm Pinsent Masons.

© Copyright 2008