Spending on offshore IT outsourcing at companies in Western Europe will grow more than threefold over the next five years.

According a new report by Forrester Research, entitled Mapping Europe’s Offshore Spending Impact, European companies will place €1.1 billion worth of contracts offshore in 2004 and increase that to €3.6 billion in 2009. The UK, in particular, has been enthusiastic about using offshore capabilities for low-cost IT and business services, says Forrester.

The analyst group forecasts that Indian service providers will benefit most, taking around 80% of the total spend over the five-year period. UK companies are keenest on using India as the main base for their offshore IT needs, but organisations in France and Germany are increasingly looking at nearshore/offshore locations like Spain, the Czech Republic, Russia and Tunisia.

As a result, indigenous IT services companies face some tough years. “Local IT services firms in the main Western European markets will face a debilitating erosion of their growth opportunities due to offshore competition,” says Forrester analyst Andrew Parker. “Worst hit will be UK-based application development specialists who face having almost half of their growth in the market between now and 2009 whittled away by work moving overseas.” That will force a hiring freeze among many IT service firms in the country, he adds.

However, Forrester suggests that Europe’s offshore momentum could yet be stifled by political intervention – driven mainly by trade union insistence on costly re-skilling and re-deployment programmes for staff hit by offshore plans – and the innate conservatism of many European business leaders.