The European outsourcing market is booming and set to match the traditionally larger US market in 2004, according to sourcing consultancy TPI. The value of the outsourcing market in Europe rose by two-thirds to EU26.4 billion in 2003, from EU15.8 billion in 2002. In the same period, the value of deals in the US fell from EU45 billion to EU38 billion. The reason for this is that European companies are turning to outsourcing as a way of controlling costs, while IT spending remains depressed. In the US, the market is more mature and therefore more exposed to downturns in the economy.

The number of ‘mega-deals’ – contracts valued at more than E1 billion – signed in Europe also more than doubled. In 2003, there were nine such deals worth EU13.3 billion, compared to just four in 2002 valued at EU6 billion.

The picture in business process outsourcing (BPO), in which entire business functions are outsourced to specialist providers, was less clear-cut.

In the US, there were 33 big BPO deals worth more than EU50 million struck in 2003. However, their total value fell by one-third from E11 billion in 2002 to EU7.4 billion in 2003.

In the smaller market of Europe, BPO deals of more than EU50 million in size fell in number from 16 to 14, although the value of these deals increased by just under 50% to EU3.8 billion.

“The adoption of BPO is actually proceeding more slowly than one might infer from the rhetoric in the industry. However, it is having an important effect on the outsourcing market,” says Duncan Aitchison, managing director of TPI.

He added: “Companies appear to be emphasising sourcing strategies as part of a corporate shared services agenda, rather than leaping into the marketplace with BPO tenders.”