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The worldwide business process outsourcing (BPO) market is set reach $133.7 billion in 2005, an 8% increase from 2004, according to Gartner analysts.

In a recent report, the analyst company says that high demand for BPO services among companies seeking to cut costs on non-competitive business processes has created a "seller's market". As more high value contracts are signed, the report says, interest and demand for BPO will surge.

In Europe, the BPO market is in its fourth consecutive year of growth, and is expected to reach e27.2 billion in 2005. This represents a 6.6% increase from 2004. Most of this growth is expected to be fuelled by the financial services and human resources sectors.

In addition to payroll and accounts payable services, European BPO providers will add procurement services to their offerings. Gartner predicts that these will be slow to take off, "mainly because it is so important for European businesses to get these activities right".

"A few years ago, BPO providers and prospective buyers held many discussions, but few deals were signed," says Gartner analyst Lisa Stone. "The level of activity we are seeing now reflects the fact that the value proposition behind BPO has been accepted by buyers."

Stone warns prospective buyers, however, that as rising demand materialises into more completed deals, the top BPO vendors will be focused on newly acquired business. For that reason, she adds, many will be in a position to bid only on projects that have a high probability on resulting in a sale. "The sooner prospective buyers can start meaningful discussions with providers, the more likely they will be to get the BPO vendor's attention," she says.