The outsourcing sector in Western Europe is growing at a “phenomenal” pace, according to Gartner, and will easily outperform the performance of the Western European IT services sector in coming years.

Spend within the sector is expected to rise by 3.1% in 2004 and continue to expand steadily over the next three years to reach an annual growth rate of 8% in 2007, says Gartner. Demand in IT services overall, however, is not expected to rise from 2003 levels.

As many as 30% of leading European businesses will ‘nearshore’ or offshore some aspect of their business and IT operations by 2005, with the offshore contact centre industry and business process outsourcing representing the highest opportunities for growth.

In addition, out of 15 outsourcing ‘mega-deals’ (those worth more than $1 billion) signed in 2003, 10 were awarded by Europe-based enterprises. But before 2003, Europe-based organisations had only signed a total of 14 mega-deals in as many years, according to Gartner.

“The potential cost advantages [of outsourcing] are so persuasive that companies that don’t consider it seriously, risk doing their shareholders a disservice,” says Gartner’s Ian Marriott. “Businesses will also be put at risk due to loss of competitive advantage and inability to focus on growth through innovation.”

	Outsourcing market in Western Europe Source: Gartner

The UK has the largest and most mature outsourcing market in Europe, representing 35% of the total. Together, Germany, Switzerland and Austria account for 22.8% and France, traditionally anti-outsourcing, now represents 12.8% of the market. By comparison, Italy accounts for 7.7%, the Nordic regions make up 7.2%, and Spain and Portugal have 4.6% of the total market.

But, warns Gartner, the expected global shift in outsourcing means that up to 25% of traditional IT jobs in developed countries today will be situated in emerging markets by 2010 – even as additional jobs in the West will be created as a result.

India remains the most popular location for global sourcing, with China, Russia and some of the 10 new members of the EU emerging as strong alternatives.