Europe bucks outsourcing trend

Europe is bucking the "tough and uncertain" global outsourcing trend with increases in the number and size of deals, according the latest market statistics.

The quarterly figures were compiled by outsourcing consultancy TPI, based on its involvement advising on private sector IT and business process outsourcing (BPO) deals globally.

While large contracts in the US are tracking behind 2002 levels, the research shows the number of contracts over €200m in Europe is up 83 per cent and has surpassed the total for last year already. So-called 'megadeals', valued at over €1bn are also still on the rise in Europe.

Duncan Aitchison, partner and managing director at TPI, said: "Clearly Europe is bucking the US trend. Larger outsourcing contracts are more prevalent in Europe than ever before."

IBM Global Services continues to dominate the IT outsourcing market, closely followed by CSC and EDS but Aitchison said the trend is continuing towards smaller deals. Most service providers have been hit by this with IBM's average deal size dropping by over a half in the last year to just over €400m.

Aitchison said: "Average deal sizes are simply smaller."

But firms whose deal pipelines are increasing are Hewlett Packard, Cap Gemini Ernst & Young and XChanging, according to TPI's figures.

BPO is still the bright spot in the outsourcing market, with deal sizes generally around half those in traditional IT outsourcing agreements. There is also a noticeable shift from front-end call centre type BPO deals to more back-end HR and finance and accounting arrangements, according to TPI.

Accenture was highlighted as the top performer in the BPO market with 27 per cent of BPO bookings.

Jack Benton, VP of marketing at TPI, said the concept of utility computing and on-demand services is "intriguing" customers who are looking for "minimum commitment and limitless capacity".

But there have been "no meaningful pricing changes" along the lines of this model in the marketplace, he said. BPO could be the key to utility computing being adopted in the services market, with capacity charged for on the basis of business process rather than IT services, according to Benton.

Looking ahead, based on its own pipeline of deals it is advising on, TPI said the market is still tough and there are unlikely to be any major outsourcing deals signed in the first quarter of next year.