More statistical confusion hits the press this week with the release of TPI’s latest 3Q09 EMEA TPI index. According to the latest round of outsourcing research, ‘Europe’s Outsourcing Market [is] Lagging Rest of World.’
Why the research only highlights Europe when they’re also taking about the Middle East and Africa is unclear; perhaps just an over-zealous press officer? Either way, the research provides an interesting and rather stark contrast to what so many other industry voices are saying. Whatever happened to ‘budgets are falling so outsourcing will grow’?
Some of the most recent positive industry voices include:
- Recent research from the NOA found that the UK was spending 12 percent more on outsourcing in 2008 than 2007 (we haven’t carried out 2009 research yet, but indications are not suggesting less).
- Research from Pierre Audoin Consultants, found that software and IT services revenues from the UK in 2008 had increased by three percent over 2007. It also picked up on big growth in UK life and pensions outsourcing.
- Research from Datamonitor this July found an increase in the largest of deals and growth in smaller outsourcing
The central problem it seems is trying to put ‘European outsourcing’ into a relatively small box. By assessing only those deals above €20 million such research can’t provide a full picture of what’s going on. And the trouble with this is that the media assumes all hell is breaking loose in outsourcing when the reality could be quite different. In fact we’ve seen some important trends which tell a rather different story.
Some of these are: an increase in multi-sourcing across the board as end users hedge their bets, create supplier competition and push for the best service at the best price. Another is the growth of interest in outsourcing from SME’s as new offshoring locations target smaller-scale, niche services. And a third is a move by end users to sign smaller-scale, shorter-length contracts.
All these trends reduce Total Contract Value, creating many new contracts, but these are deals that effectively ‘fly’ under TPI’s radar. The research actually alludes to this trend too but makes little of it, saying “Nevertheless, TPI continues to observe significant activity in the smaller BPO contracts (€5m -€10m) space.”
The fact is, deals over €20 million are decreasing, but this is largely due to organisations, both public & private starting to adopt a Sourcing Strategy (I know Gartner have been telling us to do this forever!) which then reflects changes in sourcing rather than an overall drop-off in outsourcing interest. Think about it – how many announcements have you heard recently about companies reducing their outsourcing, or bringing work back in-house?
Alongside this is a healthy new interest from non-traditional outsourcers as outsourcing and offshoring becomes more accessible to smaller companies.
Such changes will increasingly buoy the industry and offset, to a large extent, the fall in large outsourcing deals. In light of such trends perhaps it’s time to reassess the way we define the ‘outsourcing market’ in order that we can all have a better view of what’s really going on.