2003 saw record number of outsourcing mega-deals in Europe Up to 25 percent of traditional IT jobs in many developed countries will be situated in emerging markets by 2010
Barcelona, Spain 16 March 2004 — The outsourcing segment will continue to outperform the western European IT services market overall, growing by 3.1 percent in 2004, then rising steadily during the next three years to an annual increase of 8 percent in 2007, Gartner, Inc. said today. Moreover, as a result of global outsourcing trends, Gartner predicted that up to 25 percent of traditional IT jobs in many developed countries today will be situated in emerging markets by 2010.
Gartner presented its analysis of outsourcing trends and a wide range of other current IT issues at its Spring Symposium/ITxpo in Barcelona, Spain.
"Last year saw a phenomenon in Europe," according to Roger Cox, Managing Vice President, Gartner. "Out of 15 one billion US dollar mega-deals signed in 2003, 10 were awarded by Europe-based enterprises. Until 2003, Europe-based organisations had only signed a total of 14 mega-deals since 1989." He said the UK delivered five of the mega-deals last year, led by government and financial services organisations. France signed three mega-deals, indicating it has begun to overcome its cultural resistance to outsourcing.
In Western Europe, the UK is the largest and most mature market, representing 35 percent of the total European outsourcing market in 2004. Germany/Switzerland/Austria account for 22.8 percent and France 12.8 percent. Italy and the Nordic regions represent 7.7 percent and 7.2 percent respectively, while Spain and Portugal have 4.6 percent of the total market. Overall, spending in the IT services market in Western Europe is expected to be unchanged in 2004 compared with last year.
Global sourcing
Gartner said increased activity in offshore outsourcing is one of the most significant shifts in IT in the near-term. By 2005, 30 percent of leading European businesses will include nearshore or offshore in their business and IT plans. The offshore contact centre industry and business process outsourcing represent the highest opportunity for growth.
"Global sourcing is becoming a mainstream delivery model," said Ian Marriott, Vice President at Gartner. "The potential cost advantages are so persuasive that companies that don't consider it seriously risk doing their shareholders a disservice. Businesses will also be put at risk due to loss of competitive advantage and inability to focus on growth through innovation."
However, while global sourcing enables companies to deliver higher levels of services at less cost, it also poses challenges and risks. Gartner said we will continue to see increasing backlash in connection with white-collar jobs moving offshore.
"We estimate that up to 25 percent of traditional IT jobs in many developed countries around the world will be situated in emerging markets by 2010," said Marriott. "There is no doubt that the predicted shift in jobs associated with global sourcing is a harsh reality. However, there is nothing new about technology causing massive shifts in how and where people work. This is an unavoidable outcome of how the global marketplace operates today and western economies have been successful in navigating successive waves of economic transformation in the past."
Gartner said organisations will also need to invest in new skills to make outsourcing work and that additional jobs will be created as a result of global sourcing. It said governments and corporations both have a vital role to play in helping their citizens make this transition as quickly and painlessly as possible through education and retraining.
Global Sourcing Locations
India remains the undisputed offshore leader, with China and Russia continuing to emerge as strong contenders. Many other countries are eyeing the potential of providing offshore IT services. Gartner said the 10 new countries joining the European Union on 1 May will not challenge India or China in terms of size and number of IT professionals. However, these countries do have a part to play in Europe for nearshore outsourcing; they have distance, time zone, cultural and language connections in their favour. Hungary, the Czech Republic and Poland, for example, are likely to attract increasing attention from German companies.
"It is also already possible to see patterns of specialisation emerging in how countries are chosen," Marriott said. "Ireland and Israel, for example, have emerged as key locations for packaged applications and localisation services, while Russia has built a reputation for high-end software engineering."
Gartner said it is essential that organisations understand the care required in assessing offshore opportunities and that they evaluate them through a rigorous due diligence process. There is always risk associated with any external service provider relationship. In the case of offshore analysis, additional risks include geopolitical concerns, security and privacy issues as well as legal jurisdiction.
Gartner's top three recommendations for enterprises are:
Treat outsourcing as a business critical competency
Establish clear and strong sourcing strategy and governance
Be proactive with the many new types of service delivery being offered. Offshore is here, it works, it is maturing and it is mainstream
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