Georgina Prodhan

FRANKFURT: The practice of outsourcing business, long popular in the United States and Britain, is gaining in acceptance in continental Europe and is diversifying rapidly from technology services to other business processes.

In Europe, more outsourcing deals were signed last quarter than in any single quarter since 2000.

As the urgency to cut costs forces European companies to overcome reluctance to entrust parts of their business to outsiders, the size of the European market now rivals that of North America, according to a leading outsourcing adviser.

In Germany, Europe's biggest economy, banks are leading a trend of handing over entire business processes to third parties, with overall outsourcing revenues in the first nine months of 2004 tripling from the year-ago period, Technology Partners International said.

Germany now has 13 percent of the global outsourcing market, up from 3.4 percent last year, behind the United States with 42 percent and Britain with 17 percent, said TPI, which advises on around one-fifth of the world's outsourcing contracts.

European businesses have now farmed out so much work that they account for almost half of the global outsourcing business, worth a total of $198 billion last year, according to research firm IDC. The group forecasts it will grow by 65 percent to $322 billion by 2008.

With less strict labour laws and the availability of a well educated English-speaking low-cost workforce in India, Anglo-Saxons were the first to seize on the cost-cutting opportunities offered by off-shoring at first menial, then more sophisticated tasks.

More continental Europeans are jumping on the bandwagon, building service centers in countries such as Poland, the Czech Republic and Hungary.

"The majority of European projects we are working on will have an Eastern European aspect to them -- it's definitely on the uptick," TPI's International Managing Director Duncan Aitchison said in a conference call.

"There are now some very impressive facilities up and running, I've been to places where there are 12 languages functioning simultaneously," he added.

GROWTH DRIVER

Driving the latest spurt of outsourcing growth is so-called business process outsourcing (BPO), in which companies contract out entire processes, for example human resources from hiring to pension administration.

Previously, firms tended to outsource only information technology functions such as server management, IT integration or customer relations to call centres.

IDC expects the global BPO market to almost double from last year's value to $124 billion by 2008 as companies perceive not only cost advantages but added value in contracting out entire processes to third parties.

"The outsourcing companies are trying to steer the discussion away from mere cost benefits," IDC's European business services research manager Mike Friend said.

He added, however, that cost-cutting was still the overriding imperative. "Ninety-nine percent of companies won't even contemplate BPO unless there's a cost saving that offsets perceived risk."

The global market is still dominated by six U.S. players -- IBM, Accenture, EDS, Affiliated Computer Services, Computer Sciences Corp. and Hewlett-Packard.

But the opportunities for growth in the BPO market are leading an increasing number of European companies to branch out into outsourcing or switch their focus from more traditional IT areas.

At a BPO conference in Frankfurt last week, companies advertising their services included Bayer Business Services, a unit of the German giant better known for aspirin, and software maker SAP, on whose technology platforms many outsourcing companies' offerings are based.

More familiar names in the services world included loss-making CapGemini, which hopes BPO will bring new impetus to its traditional computer consultancy business.

"We believe BPO will change the whole industry," Hansjoerg Siber, in charge of the BPO division for Capgemini's Central Europe division said. "It's important that we're there. It's the future growth segment."