European Roulette

Today's blog on European outsourcing comes from Duncan Aitchison, Partner and President of TPI’s operations in EMEA.

You would think that a shift in global outsourcing demand away from the U.S. would be accompanied by an increase in outsourcing activity in Europe. Surprisingly, this has not been the case.

If one looks at the Total Contract Value (TCV) of private sector outsourcing transactions conducted in Europe each year since 2003, the amount has been consistently around the $40 billion level.

What is more interesting, however, is the pattern of outsourcing activity at the country level within Europe.

Europe remains a challenging market for any business. It doesn’t behave as a definable, targetable concentration of homogeneous demand.  It is a collection of diverse countries and regional markets with different cultural and linguistic characteristics, as well as a variety of legal and industrial structures. Together, these factors influence what is bought, where, and how it needs to be sold.

It would be helpful, at least to the vendor community, if within the European region there were identifiable adoption trends at a national level. The figures for the last five years, however, portray a market driven by something nearer to chaos theory than arithmetic progression.

Only two markets, The Netherlands and the UK, display any sign of sustained growth. Germany, cumulatively the second largest national outsourcing market in Europe over the last five years, was no more active in 2007 than it was in 2003, albeit with a relative doubling of contract value awarded in one of the intervening years. Between them, these three countries have represented nearly 70% of all European outsourcing activity since 2003.

As for the other European nations, France has seen the total value of its outsourcing contracts awarded more than halve over the past five years. Switzerland has seen the same measure double, then halve, then halve again, followed by quadrupling during the same period. Italy witnessed an almost complete collapse in market activity in 2004, only to see demand explode in 2005, crater in 2006 and recover strongly in 2007. Indeed many European countries follow this boom and bust pattern, never quite achieving sustained year on year growth or showing any signs of predictability.

Significant swathes of the European continent still remain. They have yet to reach the tipping point in terms of outsourcing adoption. Over the long-term, this points to a continuing level of healthy demand for such services across the region. In the short-term, predicting where and how demand will materialise is a tricky proposition.

Faire vos jeu, as they might say in Monte Carlo.