Europe has become the new hotspot for outsourcing contracts, exceeding the US in terms of the value of major outsourcing deals awarded last year, according to global sourcing firm Technology Partners International (TPI).
Of the $US76 billion worth of major outsourcing contracts awarded last year, Europe represented 49 per cent of the value, while the US took 44 per cent and Asia 7 per cent, TPI said in recently released research. Major contracts were defined as those worth more than $US52 million.
Taking the value of all contracts into account, the US remained the most prevalent location for outsourcing, but Europe had progressed as a geography, TPI managing director, Duncan Aitchison, said.
In all, Europe netted $US36.7 billion worth of the major contracts won in 2004, almost doubling the value of those awarded in 2002. By winning a couple of extra major contracts in 2004, Europe was able to push the value of the deals it won last year above the U.S., Aitchison explained.
Growth in outsourcing in Germany in particular helped boost Europe's standing as an outsourcing market leader, TPI said. Germany accounted for 12.5 per cent of the value of the worldwide contracts awarded in 2004, coming in at the heels of only the UK, with 20 per cent, and the U.S. as the largest country market.
Germany had increased its share of worldwide contracts from less than 1 per cent to its present double-digit place in just four years, Aitchison said. The market was fragmented in terms of service providers, he said. This allowed new players to come on to the scene.
In fact, the "Big Six" major outsourcing providers - IBM, HP, Accenture, Computer Sciences, Electronic Data Systems and Affiliated Computer Services - faced increased competition worldwide in 2004, according to TPI. "The big headline is more vendor diversity," Aitchison said. The Big Six won 44 per cent of the contracts in 2004 compared to 71 per cent in 2003, as a greater variety of vendors won major contracts last year, TPI said. The top 100 deals by value were won by 36 providers in 2004, compared to 23 the previous year, the researcher noted.
And highlighting Europe's changing role in the outsourcing market, the Big Six lost significant market share in the region last year.
In information technology outsourcing, the Big Six saw their market share in Europe fall from 73 per cent in 2003 to 36 per cent in 2004, as local service providers gained an advantage, TPI said. Strong European players such as Capgemini, Siemens, Xchanging and T-Systems helped tilt the balance, with each of them winning contracts worth more than $US3.93 billion.
In the US, the Big Six saw their share of IT outsourcing contracts fall from 87 per cent in 2003 to 65 per cent last year.
Another trend was an increase in business process outsourcing (BPO), which included functions such as finance, accounting, procurement, customer relationship management and human resources processing, TPI said. BPO contracts expanded by 50 per cent as the number of contracts awarded last year, compared to 22 per cent of the contracts in 2003.
Of the total major contracts awarded in 2004, 67 per cent were information technology outsourcing, while 33 per cent were BPO, the researcher said.
Not only was there an increase in BPO contracts but they were generally longer in duration than IT contracts because they often involve multiple functions and include IT, Aitchison said. What is more, BPO contracts increasingly had an offshore element.