European Business Process Outsourcing (BPO) Forecast and Analysis, 2001-2006

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.