by Beth Bacheldor

Europe Overtakes North America in Outsourcing Games

Dec 22, 2009
IT Leadership

This year, companies in Europe are on track to spend more in outsourcing than North American companies by more than $1 billion.

If there were an Olympics of outsourcing, Team Europe would be winning, according to a new report just out from TPI, a market research and advisory firm.

In fact, according to the firm’s TPI Momentum Market Trends & Insights 3Q09 Geography Report, European companies outspent their North American counterparts by approximately $1.2 billion in average annual contract value (ACV) through the third quarter.

Individual country tallies, however, give the United States the gold, the United Kingdom the silver, and Canada the bronze. India and China, though lower in the rankings (13 and 21, respectively), have experienced a rapid rise in spending, according to TPI.

The report is designed to help service providers and others find and pursue business opportunities around the world.

So, European companies are spending a billion dollars more on outsourcing than North American companies. That is a big chunk of change. A year ago, North America companies were outspending their European brethren by almost as much: 29.6 billion in ACV versus $28.7 billion. What happened? Or didn’t happen?

I mean, isn’t Europe suffering the same troublesome economic woes as North America? It’s clear to me that, at least here in the United States, the recession forced fewer IT outsourcing deals and lower IT service pricing in 2009. Although some expect an uptick in 2010, it’ll be a small one.

Melany Williams, TPI Momentum’s partner and managing director, says that not only did economic climate in the United States put a damper on the outsourcing market this year, so did politics and the public. Specifically, offshoring was adversely affected by pressures to retain jobs here, particularly in the hard-hit financial sector where many companies that received TARP funding had more than political pressure holding them back from making outsourcing decisions. Williams says TPI sees evidence that the United States market will rebound in 2010.

Europe, which spent more than $30.5 billion in active ACV, did succumb to the effects of economic troubles. As far as outsourcing goes, the continent was on pace to hit 7 percent growth, its smallest increase in more than a decade. IT outsourcing led the way, and much of the business is coming from the northern part of the region.

At the end of first three quarters of 2009, the European marketplace had overtaken North America as the region with the highest annual spending on outsourcing, with slightly more than $30.5 billion in active ACV. Europe was on pace to achieve a 7 percent growth, its smallest increase in more than a decade. In fact, Germany, The Netherlands, Sweden and Switzerland have shown increased interest in bundled infrastructure and applications services. TPI expects Europe to be stronger in 2010, just as it does North America.

New to TPI Momentum’s research report (for a summary of the report, go here) is a model designed to evaluate and rank 115 countries according to their outsourcing viability. The model combines a set of common evaluation criteria and TPI own insight into what makes delivery center locations successful, and includes a total of 23 weighted evaluation criteria built around six areas of focus. Service providers and others can evaluate the strengths and weaknesses of each individual country on these six areas that address variety of topics, from the caliber of the workforce to the political and economic stability of the country.