At a time when the U.S.-based buyers have started looking closer to home for onshore-delivery resources, the demand for IT Outsourcing (ITO), and Finance and Accounting Outsourcing (FAO) has been robust in Europe, Middle East and Asia (EMEA) in the third quarter of 2007, according to EquaTerra’s Pulse Survey. Despite the fact that the proportion of deals coming out of EMEA versus America declined in 3Q ‘07 compared to 2Q ’07, there is a significant level of interest in the HR Outsourcing (HRO) space, as shown by the EMEA region.
“Not only the demand for ITO and Business Process Outsourcing (BPO) is improving, it is picking up strongly in the EMEA markets,” Stan Lepeak, Managing Director, Research, EquaTerra.
The ITO deals awarded by EMEA-based companies were not only big in number but also in size. For instance, the $1,400 million ITO deal between AstraZeneca and IBM, and the $1,000 million ITO deal between Reuters and Fujitsu.
Buyers Begin to Search for Talent Beyond India
In the near future, choosing India as outsourcing destination can hit hard on customers’ pockets because of rising wages, increasing attrition level and rupee appreciation. This trend enforces them to look at other outsourcing locations such as China, Central and South America, and Central and Eastern Europe to increase their delivery capabilities, says the EquaTerra’s survey for 3Q ’07.
“While investments in India remained strong in the last quarter, factors like wage inflation, rupee appreciation and rising attrition are forcing buyers to look at other locations,” adds Lepeak.
However, Indian service providers continued to broaden their delivery capabilities into BPO and newer ITO areas like remote-infrastructure management. In fact, investments in Indian markets also remained as strong as they were in previous quarters.
What will be Hot in 2008
Fifty one percent of EquaTerra’s advisors and 39 percent of service providers, who participated in the survey, noted that the demand for outsourcing increased in 3Q ’07, and hence, their outlook for 2008 remains optimistic. Especially, the demand for ITO and BPO will improve over the next year with the demand for BPO to continue grow faster than in the more mature ITO market.
“The coming quarters will see a lot of action in terms of M&As where India will be a clear winner. Buyers will tend to think on the ground of deals’ size because cost cutting will become paramount for buyers,” Lepeak elaborates.
Highlights of 3Q ’07: Toppers in
| Market segments |
1. ITO
2. FAO
3. HRO |
| HRO areas |
1. Payroll
2. HR IT
3. Benefits |
| FAO functions |
1. AP
2. AR/C&C
3. General Accounting |
| Leading ITO segments |
1. Infrastructure/Operations
2. ADM
3. Desktop |
| Leading industry verticals |
1. Banking/Financial services
2. Pharma/Biotech
3. Energy/Utilities |
Source: EquaTerra
