One of Europe’s greatest peacetime disasters has been the sinking of the Ireland-made vessel R.M.S. Titanic on its maiden voyage from Southampton to New York City in 1912. That this “unsinkable” liner went down is attributed to the bad luck of an encounter with an iceberg; but that only about 700 of over 2,000 passengers onboard survived the wreck is widely ascribed to overconfidence — the Titanic did not carry sufficient lifeboats for everyone on board.

Is there an analogy here with European IT and BPO service providers? Atos Origin, LogicaCMG, T-Systems, SBS,  and Lufthansa Systems, the European heavyweights who once were outsourcing providers of choice for European corporates, are being sidestepped by the American biggies, and even the Indians.

Reducing profit margins, acquisitions, talks of possible bailouts, and shutting down of key business lines are raising alarm bells for the services industry in Europe. The last few months have seen Board members at Atos Origin, Logica and T-Systems being forced to step down on the back of falling operating margins and lowered stock valuations. Logica registered a 13 percent fall in its share prices when it closed its core U.K. units after announcing profit warnings in May this year, while Atos Origin saw a fall of 48 percent in its stock-market evaluation last year between April and August when it had issued profit warnings, according to Datamonitor reports.

Of the 20 to 25 global sourcing deals in Europe that Morgan Chambers, a European sourcing-advisory firm, closed in the last few years, not a single contract was signed with European providers; 82 percent of the deals went to Indian providers, 12 percent to the Chinese and 6 percent to the Philippines.

“Many European customers are re-structuring their contracts to include application development and maintenance work to be offshored to other low-cost locations,” says Sridhar Vedala, Director, Global Sourcing Group, Morgan Chambers. A large Belgian bank and a European custody settlement company, for instance, are currently considering Indian and American providers for offshore work. “They are considering the likes of IBM, Accenture, Wipro, Infosys, NIIT, and Hexaware.” reveals Vedala. While one is expected to be a €20 million deal, the other will be less than €5 million. 

“Indigenous European players are being squeezed by the Indo-American players,” agrees Angel Dobardziev, Senior Analyst, Ovum, a Europe-based advisory firm. “Growth has moderated into mid-single digits in the European continent.”

Top Deals Bagged by European Providers (Jan. ’07 to July ’07)

Only 15% of all global ITO deals went to the European Poviders  Customer   Provider   *Amount  ($ mn)  Liverpool City Council  BT Group   637  Credit Suisse First Boston    BT Group  1,100  Centrica   T-Systems   792 (est.)  Swindon Borough Council   Capita Group   478  Sandwell Metropolitan Borough Council   Liberata  588  BT Group  Computacenter  300  U.S. Postal Service    Serco  260  Co-operative Financial Services  Xansa 196  Rabobank    Ordina  70  Italian Ministry for Agriculture,  Food and Forestry Policies  Almaviva  1,700  Sparebank 1 Gruppen   EDB Business  Partner   605  Resolution    Capita  580  University Hospital of North Staffordshire NHS Trust  Affiniti 136  *Deals with a value of more than $1 mn in the last  seven months have been taken;  Source: Datamonitor