Study: Europe overtakes U.S. in big outsourcing deals

Europe has become the new hotspot for outsourcing contracts, exceeding the U.S. in terms of the value of major outsourcing deals awarded last year, global sourcing firm Technology Partners International Inc. (TPI) said Friday.

Of the €58 billion ($76 billion) worth of major outsourcing contracts awarded last year, Europe represented 49 percent of the value, while the U.S. took 44 percent and Asia 7 percent, TPI said in research released Friday. Major contracts were defined as those worth over €40 million.

Taking the value of all contracts into account, the U.S. remains the most prevalent location for outsourcing, but Europe has progressed as a geography, TPI Managing Director Duncan Aitchison said in a conference call Friday.

In all, Europe netted €28 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 percent of the value of the worldwide contracts awarded in 2004, coming in at the heels of only the U.K., with 20 percent, and the U.S. as the largest country market.

Germany has increased its share of worldwide contracts from less than 1 percent to its present double-digit place in just four years, Aitchison said, adding that the market is fragmented in terms of service providers, allowing for new players to come on to the scene.

In fact, the "Big Six" major outsourcing providers -- IBM, Hewlett-Packard, 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 percent of the contracts in 2004 compared to 71 percent 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 percent in 2003 to 36 percent in 2004, as local service providers gained an advantage, TPI said. Strong European players like Capgemini, Siemens, Xchanging, and T-Systems helped tilt the balance, with each of them winning contracts worth over €3 billion, the researcher added.

In the U.S., the Big Six saw their share of IT outsourcing contracts fall from 87 percent in 2003 to 65 percent last year.

Another trend was an increase in business process outsourcing (BPO), which includes functions such as finance, accounting, procurement, customer relationship management and human resources processing, TPI said. BPO contracts expanded by 50 percent as the number of contracts awarded last year, compared to 22 percent of the contracts in 2003.

Of the total major contracts awarded in 2004, 67 percent were information technology outsourcing, while 33 percent were BPO, the researcher said.