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Outsourcing: Big in Europe
While the US drags its feet...

By Tim Ferguson

Published: Thursday 25 October 2007

Europe is now the biggest market for outsourcing, while demand in the US has softened as a result of a shift in focus to smaller deals.

And the global outsourcing market is continuing to grow but at a slower rate - and with lower average deals sizes, according to consultancy TPI's quarterly outsourcing index.

TPI said the total number of outsourcing contracts awarded this year is down 17 per cent on 2006 and is the smallest number awarded during the first three quarters of a year since 2001.

The global value of contracts awarded from January to September this year was €38.2bn compared to €46bn last year.

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TPI attributes the slowdown to a downturn in the US - which has seen a 53 per cent reduction in the value of major contracts - of €40m or more, compared to last year.

The average contract value of major US contracts is €123m, which is a 38 per cent decrease on last year. The average deal size in Europe is €198m - a 35 per cent increase.

TPI blames two trends in the US for the downturn: organisations moving to smaller and shorter deals and a decline in retendered contracts.

MD of TPI, Duncan Aitchison, said the shift is partly due to US companies using framework agreements rather than full outsourcing contracts and also companies favouring a multi-sourcing approach.

Europe is now the largest market according to TPI, with 56 per cent of the global market share - totalling more than €20bn. The region's share a year ago was just 37 per cent (€17bn).

Another point to emerge from the index is that 59 per cent of outsourcing contracts involve some kind of offshore activity.

Aitchison said the rise in offshoring shows the market is becoming more diversified, offering a greater choice of location and provider.