Europe has seen its first ever year as the world’s most active outsourcing market, according to the latest Quarterly Index from sourcing advisors TPI. In 2007, Europe surpassed the Americas in both the number of contracts awarded in the region and in total value. The year saw 220 contracts signed in Europe, yielding a total value of €32.7 billion. In the Americas, 194 contracts were signed worth a total value of €21.3 billion.
Europe also showed impressive growth in contracts entirely new to the market (which excludes transactions that are restructurings of existing outsourcing arrangements). In 2007, the annualised value of new contracts awarded in Europe was up almost 31 percent on 2006 levels, compared with an increase of 13 percent globally.
“Companies across Europe are outsourcing in ever greater numbers. In addition to the established UK market, we are seeing increased outsourcing activity across Northern Europe especially in Germany, The Netherlands, Sweden, Switzerland andFrance. As a result, average contract values for those deals entirely new to the market in EMEA increased by a very healthy 40%,” commented Duncan Aitchison, partner and president, TPI EMEA.
2007 also yielded the highest total contract value ever for Business Process Outsourcing (BPO) in Europe. It was also the first year in which Europe accounted for more than half of the total value of all major global BPO contracts. The financial services sector dominated demand for BPO in Europe, representing over 38 percent of the total value of outsourcing contracts signed. Meanwhile, the worldwide market for Financial Service Operations (FSO) outsourcing has grown by 22.5 per cent since 2003.
The picture of outsourcing worldwide is also positive. The more than €12bn of Annualised Contract Value (ACV) awarded in 2007 matched the five-year global average. New scope ACV was up globally year on year by a healthy 13 percent. The fourth quarter was actually the best quarter on an ACV basis in eleven years. At year end, active contracts globally were delivering over €63 billion in revenue to service providers, which signifies a global growth rate of over seven percent – well above the 5.3 percent five year compound annual growth rate.
“After a relatively slow start to the year, 2007 witnessed a very strong final quarter. Given the sustained growth rate we are currently witnessing and the level of activity, particularly in Europe and Asia Pacific, we have every reason to expect similar strength in the market going forward,” said Aitchison.
The India-based providers’ share of global contracts continued to expand in 2007, up by 42 percent on last year’s share and 114 percent on the three-year average 2004-2006. By contrast, despite Europe’s overall growth as an outsourcing market and a significant increase in market share for BT, the European Big Five (Atos Origin, BT, Capgemini, Siemens and T-Systems) saw their collective share of outsourcing contracts signed globally decline by 17 percent since last year, and by over 50 percent over the previous three years. Indeed, the India-based providers have, for the first time, equalised their share with the European Big Five.
“The India-based providers have increased their foothold in the past year in terms of market share. They are succeeding in expanding their share of the growing European market and continue to establish themselves as an attractive alternative to the more traditional outsourcing players,” commented Aitchison.
India’s wider economic success is also driving an expansion of domestic demand for outsourcing. The total value of contracts signed by buyers in the region has grown from €2.2 billion in 2006 to €3.9 billion in 2007. China has also seen a greater level of activity, albeit from a small base. In 2006, China-based buyers generated €0.4 billion in terms of the total value of contracts let. In 2007, this has risen to €1.52 billion. Accenture, HP, IBM, and Wipro are winning much of the Asia-Pacific deals.
“It will be interesting to track this development in which the very countries that have been known for their provision of outsourcing to others are now becoming buyers in their own right. We expect that companies across the globe will continue to seek the benefits of outsourcing as the market becomes increasingly global over the coming months and years,” added Aitchison.
