Outsourcing drops amid Euro crisis

Outsourcing activity in Europe fell by 29% in the second quarter of this year, thanks to “macroeconomic uncertainty and concern about the future of the Euro”, according to outsourcing advisory ISG.

The number of deals worth €20 million or more signed during the quarter was 65, down 29% from the second quarter of 2011, ISG’s latest TPI index found. And the combined value of contracts signed was €6.7 billion, down 21% from last year.

The decline was especially pronounced in mature outsourcing markets, with total contract value in the UK falling 12% to €5.7 billion. “By contrast, France, Southern and Eastern Europe maintained their five year averages,” ISG said.

BPO contract value did decline during the quarter, but the real drop came in IT outsourcing contracts, ISG said. The total contract value of IT outsourcing contracts signed during the first half of this year is the lowest it has been five years.

“Following a record-breaking second half of 2011, Europe has had a notably sluggish start to the year,” said Duncan Aitchison, EMEA partner at ISG. “The shortfall in EMEA stems from a drop-off in the pace of smaller contract awards, as well as the absence of significant mega-deal activity.”

This compared to a 6% rise in outsourcing by contract value in the US, up to €6.5 billion, and a massive 181% increase in Asia Pacific, up to “nearly €4 billion”. ISG said that the huge uptick in the Asia Pacific region was primarily the result of one particular ‘megadeal’, but added that the trend is generally upwards in the region and that the Indian outsourcing market is growing especially fast.

The figures suggest that the European IT services giant have another tough year ahead of them. One company bucking the trend, however, is Accenture.

Although Europe was the consulting and outsourcing provider’s weakest region in its most recent financial quarter, with revenues increasing by just 1% to $2.9 billion, the company said it had seen an uptick in outsourcing activity. “There is a greater acceptance [of outsourcing] in all the continental Europe countries, and this is driving a new source for growth in our outsourcing business.”

Earlier this month, Information Age spoke to Marco Stefanini, founder and CEO of Brazilian IT services company Stefanini. Despite the troubled state of the market, he has ambitions to expand the company’s share of the European outsourcing sector.

“”A crisis can offer a strong opportunity,” he said. “Large corporations don’t like to change, especially in Europe. But in a crisis, you must change. That’s an opportunity for us to enter the market with a different proposition.”

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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