*NEWS*EU:OUTSOURCING CAPITOL OF THE WORLD

[Anonymous]

Europe outsourcing capital of the world
US slips into second place for the first time, survey claims

Europe has overtaken the US as the world’s leading market for outsourcing contracts, a report has claimed.

According to the latest Quarterly
Index from outsourcing advisory firm TPI, Europe accounted for just
under half of the value of major outsourcing contracts (those worth
over €40m) awarded worldwide in 2004. The US came in second at 44 per
cent, with Asia Pacific trailing at just seven per cent.

The €28bn of contracts awarded by European companies last year is more than double the value in 2002, TPI reported.

Duncan Aitchison, international
managing director at TPI, said: “The equalisation between the European
and US outsourcing markets comes through dramatic growth in Europe, not
any significant decline in outsourcing in the Americas.

“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.”

The report also found that the value of major outsourcing contracts awarded last year was a record €58bn worldwide.

Over two thirds of this was IT
outsourcing and a third business process outsourcing, whereby companies
engage third parties to perform functions such as finance, accounting,
procurement and human resources processing.

Business process outsourcing expanded by 50 per cent as a proportion of major contracts last year, from 22 per cent in 2003.

“Judging from the pipeline of deals
on which TPI is advising, European outsourcing is likely to increase
yet again this year. We expect business process outsourcing to continue
to gain in popularity and for IT outsourcing’s lead to gradually
narrow,” Aitchison added.

According to the study, the
increasing dominance of the European market in the global outsourcing
scene is proving problematic for the ‘big six’ outsourcing providers:
IBM, CSC, EDS, Accenture, ACS and HP.

These firms have seen their
collective market share fall by almost two fifths (38 per cent) in
2004, winning only 44 per cent of major contracts last year, compared
to 71 per cent in 2003. ACS is the only big six player to have
increased its market share, while HP’s market share is static. The
other four have all experienced a significant fall.

The squeeze on the market share of
the big six was particularly severe in Europe. In IT outsourcing, they
have seen a 51 per cent decline in their market share from 73 per cent
in 2003 to 36 per cent in 2004.

This compares to only a 25 per cent fall in their share of the US market, from 87 per cent to 65 per cent.

“In Europe, the fastest growing
market geographically, the big six are not maintaining market share in
either IT outsourcing or business process outsourcing,” said Aitchison.

“The players that have done well in
this space in 2004 are companies like Capgemini, Siemens, Xchanging and
T-systems, each of which signed over €3bn worth of contracts during
2004. It should come as no surprise that all of these are indigenous
European service providers.”

Despite the controversy that
surrounds offshore outsourcing, 40 per cent of the contracts awarded in
2004 on which TPI advised contained an offshore, or global service
delivery, element.

Offshoring is a more common component
in business process outsourcing than IT outsourcing contracts, with 76
per cent of major business process outsourcing deals with which TPI was
involved last year entailing at least some offshoring, up by more than
a quarter from 56 per cent in 2003.

“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.

[Author]

January 16, 2005 at 11:05 AM