Europe beats US in the number of outsourcing deals but anticipates slowdown during recessionary times

Recent report from TPI shows that Europe finally outruns US for outsourcing deals but sees a slowdown during recessionary times. There were a record number of outsourcing contracts signed by European companies during 2008 despite a 50 per cent fall in the value of deals in the second half of the year, and only one significant mega deal signed during the 3rd quarter.
Worldwide, IT outsourcing deals were worth up to €72bn which is more 5.6 per cent than those signed in 2007. The number of contracts in Europe rose by 17 per cent year on year and for the first time Europe outruns the US with 55 per cent of signed deals, compared to just 32 per cent in the US. The number of European deals hit 271, compared to 243 across the Atlantic.
According to Duncan Aitchison, president of TPI research company, such high results were achieved mainly because of the strong first half and in particular through the level of mega-deal activity in the region, which awarded two-thirds of the world's $1bn-plus contracts last year.
But as the global crisis hit hard business in Europe fell by 50 per cent in the second half of the year and the value of contracts awarded in Europe dropped significantly. According to the report new outsourcing contracts in Europe fell from 75 to 56 in the 2nd to 3rd quarter of this year with total contract value decreasing from US$18.5 billion to US$5.5 billion and that weakness continued into the fourth quarter, and looks likely to remain into the first part of 2009.
Aitchison claimed that the outsourcing market will have to rely on smaller deals to maintain its growth in 2009. In the past couple of years the mega deal has been consigned by many to the outsourcing scrap heap in favour of multi sourcing that is choosing separate suppliers for different processes. This has allowed smaller, more specialised service providers to step into the limelight. However, with the focus moving back onto cost as the main deciding factor in outsourcing, having one outsourcing supplier will minimise management, due diligence and supplier selection costs. It should also provide the end user with savings achieved by buying in bulk. So maybe we are seeing a pause as mega deals, generally, take some time to set up.
As more and more organisations come to grips with the credit crunch, we will see outsourcing move to the top of the boardroom agenda. Outsourcing has always been associated with cost savings and now with all companies setting aggressive cost saving targets for next year we may see more and more outsourcing contracts come to fruition.