Europe loses outsourcing appetite - but no one's told the UK public sector

With the general economic picture looking gloomy across the EMEA region, outsourcing is being hit hard - except in the UK public sector, where it's just starting to find its momentum for the first time since the 2010 election
Written by Jo Best, Contributor

European appetite for outsourcing is dwindling in the face of the ongoing uncertainty over the fate of the Euro — just as the UK government is rediscovering its interest in it.

The total value of outsourcing contracts in the EMEA region fell to €6.7bn (£5.2bn) in the second quarter of this year, according to research from analyst house ISG. The figure, which covers outsourcing deals over €20m signed by the private sector, represents a fall of 21 percent year on year.

Both IT outsourcing (ITO) and business process outsourcing (BPO) deals were hard hit over the first half of this year, falling 26 percent year on year to €9.1bn and 27 percent to €5.1bn, respectively. However, unlike ITO, BPO's first-half contract value is still ahead of its five-year average.

"The predominant issue here is the macroeconomic backdrop," Duncan Aitchison, EMEA partner at ISG, said. "Typically when organisations are looking at outsourcing, it's quite big and long-term — they're looking five years down the road. It's tough to do that when you're in uncertain position."

Deals in Europe's two biggest markets, Germany and the UK, dropped off notably in the face of the exposure to Eurozone woe — contracts so far this year are down 30 percent and 16 percent year on year.

UK public sector

While the country as a whole may be seeing a slump in outsourcing, the UK's public sector is rediscovering its enthusiasm for the subject.

"Outsourcing definitely slowed down while the new government got its feet under the table... the UK public sector now seems to be moving forward again and moving forward with greater aggression," Aitchison said.

"In 2010-11, there was much more of a focus on going to major suppliers and squeezing that particular lemon hard. Now they're looking at what else they can do, and what they can do differently, like multi-sourcing," he added.

The UK public sector spent €11.4bn on outsourcing during the first half of this year, compared to the €5.7bn the private sector spent. Over the same period, the rest of public sector in EMEA notched up €1.1bn.

The total value of EMEA's outsourcing contracts may be falling off, but it's a different picture in the rest of the world: the Americas' €6.5bn spend on outsourcing was up four percent year on year, while Asia's €4bn showed a jump of 181 percent year on year.

In both regions, according to Aitchison, it's the growing use of outsourcing in newer markets — Brazil in the Americas, India in Asia — that is serving to prop up declining demand in more established markets.

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