European outsourcing contracts are getting bigger according to market analyst firm IDC. Four deals signed in Europe during 1998 were valued at over $1m compared with none during 1997. Two more billion-dollar plus contracts had a significant European component. These six contracts accounted for 71% of a total market valued at $23.4bn, up 12% over 1997.
Most notable from the list of wins, according to IDC outsourcing analyst Mirko Lukacs, was the relatively weak performance of EDS in 1998. Where the company laid claim to three out of the five largest European outsourcing contracts during 1997, last year this was reduced to just one. EDS’ biggest European deal last year was a 10-year, $1.5bn contract with Banco di Roma. In 1997 EDS secured a 10 year, $936m contract with Rolls Royce Aerospace, a $490m deal with Rolls Royce Industrial Power Group and a deal with the Italian Ministry of Public Education valued at $420m over four years.
While EDS’ performance has dropped-off, IBM Global Services’ has blossomed. From outside the top five in 1997, the IT services division of IBM secured the 1998 top spot with its 10 year, $3bn hardware infrastructure outsourcing deal with Cable & Wireless signed in September. Also with a European component was IBM GS’ $4bn legacy applications processing agreement with AT&T. The flipside of this deal was AT&T’s $5bn agreement to provide IBM with network services following the sale of the IBM Global Network to the telecoms giant.
This comparison of the European performances of the World’s two largest IT services companies mirrors their financial achievements. Over the last year IBM GS has steadily pulled away from its rival, firmly establishing itself as the global service number one. EDS was, however, a member of ICL’s Transys consortium which won a 17 year, $1.6bn deal with London Transport. IDC believes that similar consortia will become commonplace in European outsourcing as demand increases for best-of-breed services.
The most surprising entrant was Siemens Business Service’s with its 15 year, $1.5bn arrangement to manage the back office and administrative functions of UK government department National Savings. The ability of a relatively undeveloped German company to win megadeals in Europe could, according to Lukacs, be very significant in a market that is becoming steadily more competitive due to the increased outsourcing activity of the Big Five accounting firms and a range of hardware, software, and telecoms companies.
Significantly, the trend for megacontracts seems to have moved away from the traditional outsourcing stronghold of the manufacturing sector and towards the banking and telecoms industries, both of which are showing increasing demand for business process outsourcing. However, manufacturing still accounted for over a quarter of all outsourcing deals in 1998, ahead of banking and finance with 17% and government sector contracts which made up 15%, down 50% over the previous year.
The UK continued to lead the European outsourcing table, ahead of Germany. Surprisingly, France scored fewer of the top European outsourcing deals than Italy, Spain and Switzerland.
