Acceleration of BPO Activity in Europe
In comparison to the strongly publicized IT outsourcing market, the broader, but generally less documented BPO market in Western Europe is a giant market with both mature and emerging market segments. IDC not only identifies a current acceleration of BPO activity in the region, triggered by strong economic pressures, but also projects a structural growth of BPO spending. Both public and private organizations increasingly focus on core competencies and seek the help of a growing group of specialist BPO service providers to manage non-core functions for them by leveraging new technology and the Internet.
In order to fully understand what BPO means, it is necessary to first look at the overall business services landscape, and how BPO fits in to this. There are a number of different ways in which organizations can involve external specialists for business services. These different ways, that IDC refers to as "engagement types" include:
BPO services involve outsourcing business processes or functional areas (such as logistics or human resources), with performance metrics tied to the strategic business value of services provided and to customer satisfaction. Business value is recognized through results such as increased productivity, new business opportunities, new revenue generation, cost reduction, business transformation, and the improvement of shareholders' value. This is different from IS outsourcing and processing services, for which primary metrics are tied to accuracy, timeliness, and performance of the information systems.
Evolution of Corporate Sourcing Strategies
Business process outsourcing as a business concept is not new. The use of external specialists in areas such as finance, accounting, logistics and IT goes back a long time. What is new is the scope, adoption speed and business impact of BPO in Western Europe, which includes the following factors:
In Europe, we are at the beginning of the unfolding of vertically integrated public and private organizations into more specialized companies that go to market and add value as part of a larger network of collaborating organizations. Also, competition in the BPO market is just starting to shape up, with various types of players entering the market with new and often innovative offerings.
BPO Growth Outlook
The overall outlook for growth in the European BPO market is healthy as BPO adoption in the region is far from mature, but there are significant differences by corporate function, country and industry.
Based on a comprehensive demand and supply-side model, IDC estimates that in 2001, $132.5 billion was spent on BPO services in Western Europe in the 10 functional areas covered in this study. This makes Western Europe the second largest regional BPO market in the world after the United States, which had an estimated total spend of $417.5 billion in 2001. European BPO spending is projected to grow at a CAGR of 11.8% to $231 billion in 2006, the major assumption being that the management of a company's business functions will continue to migrate from internal to external service providers as organizations in Europe will focus more on core competencies.
IDC Opinion
The European BPO market is a high-potential market with fast growing high-risk emerging areas as well as solidly growing mature segments. The established BPO players in mature segments such as logistics and facility operations and management are performing relatively well under the current economic conditions. There are even emerging players in areas such as HR and customer care that are showing outstanding growth. However, there are also players that have not yet achieved healthy margin and profit levels in BPO, including players with an IT consulting or Big 5 background.
Clearly, there is not one golden formula for winning in the extremely dynamic European BPO market or segments of it. As the European market is still highly fragmented, there are not many players that currently combine excellence in all areas of people, process and technology management. Therefore IDC believes the European BPO marketplace will see partnering, alliance and acquisition activity intensify between players from different backgrounds, most notably between technology experts and process experts.
From a broader perspective, Europe is at the start of the BPO learning curve and user sourcing strategies as well as competition still have to crystallize. IDC believes it is very likely that we are going to see some "bumpy rides" in BPO in the coming years. User organizations will have to find a proper balance between what to keep in-house and what to outsource and will have to build up deeper supplier management skills. Service providers, on the other hand, will have to create economies of scale and manage the complex risk and profitability of large outsourcing engagements that require a strong capital position and a long-term view.
But overall, IDC foresees that there are still enormous improvements to gain in efficiency and productivity in the European economy by companies collaborating more closely with each other through outsourcing and other types of partnerships. This will structurally drive the growth of BPO in Europe, despite the many practical, legal and sometimes cultural hurdles that need to be overcome.
About this Study
This IDC study provides a panoramic view, sizing, forecast and analysis of the BPO market in Western Europe. It identifies corporate sourcing strategies and BPO market opportunities in the region and explores the competitive landscape.
It provides a detailed sizing of the BPO marketplace, including a five-year analysis and forecast for ten key corporate functions. These functions include:
In addition, the report provides BPO forecasts and analysis by country and industry in Western Europe and highlights recent major BPO outsourcing deals by industry.