The outsourcing market has seen a near seismic shift over the last two years in the geographic profile of market demand. No one is standing still.
For the majority of the past three decades the United States has been the leading buyer of outsourced services. In fact, just five years ago it comprised 66 percent of the outsourcing contract value. By the end of 2007, this picture changed dramatically. The United States accounted for less than 30 percent of the global contract value while Europe led by 50 percent in the same period.
So how has this change impacted the service provider community and the European heritage providers in particular?
The phrase "a rising tide lifts all boats" comes to mind - originally coined by Sean Lemass, an Irish politician, and made popular by John F. Kennedy. If this aphorism held true, then the shift to Europe should have disproportionately benefited European heritage providers. But such is not the case.
Since 2005, leading European outsourcing service providers watched their share of global commercial total contract value (TCV) cut in half by 2007. By comparison, leading U.S. outsourcing service providers saw their piece of the market contract by less than one fifth. And then there are the Indian heritage vendors, a group which has nearly doubled its share of broader market awards during the same period, enjoying the same level of overall penetration as the leading European players.
But let's not forget the achievements by a number of European service providers. BT was one of only five vendors to secure more than 20 contract awards greater than US$25 million TCV in the broader market last year. Demand growth in managed network services proved to be a happy hunting ground for Alcatel-Lucent, and the European financial services operations market expansion, particularly in the insurance segment, has been seized upon successfully by Capita.
But the conclusion that European outsourcing vendors failed to make the most of their back yard developments is hard to avoid.
The reason they failed: outsourcing is global. Capability is what matters and European players lag behind their U.S. and Indian counterparts. Some European vendors, such as Capgemini, continue with aggressive moves, despite talk of Indian vendors acquiring larger European providers. But market forces are tough to fight.
The outsourcing service provider landscape will continue to develop, and will have little to do with geographic heritage. How firms adjust to new pressures and opportunities will determine whose boat floats highest.