Some vendors have run into problems in the UK and Italy, and the increasingly competitive Nordic market, but France has proved to be a consistently happy hunting ground for domestic and international suppliers, which is reflected in a series of strong financial results from local vendors, and accelerating M&A activity.
So what is driving this growth? GFI Informatique, which posted organic growth of 5% in France last year, highlighted demand for SAP and Oracle migration projects, and consulting projects in credit card payments, customer loyalty, and project management. Steria, which recorded organic revenue growth of 13% in the fourth quarter, pointed to growth of 16% in its managed services business and over 11% in consulting and integration sales.
Capgemini and Atos Origin, the two largest indigenous vendors in the country both grew their French revenue by 9% in 2006. Didier Zeitoun, CEO at Atos Origin’s French operation, told us: The French market was really booming in 2006. We grew sales 9% in the country last year and we anticipate the same positive figures in 2007. We recruited 2,500 new employees in France in 2006, and we plan to add the same number this year as well.
Zeitoun said Atos Origin is seeing strong growth across its three main service lines: consulting, integration, and managed services, and said the company is recruiting particularly aggressively in SAP and consulting skills. The most active industry for us is the public sector as a lot of government agencies are modernizing their IT systems, he said. There are also lots of projects in the healthcare sector, but all industries are trying to lower their IT maintenance costs in order to have more freedom to undertake new projects.
Meanwhile, in its latest annual review, LogicaCMG, which acquired French integrator Unilog in 2005, said the French market continues to perform well. It said business intelligence and CRM projects are driving growth in the financial services sector, and that demand from transportation and retail clients offset weakness in the automotive and pharmaceutical industries.
Stanislas de Bentzmann, the co-CEO at infrastructure consulting vendor Devoteam, said: France is strong, but the whole of western Europe is strong for IT services investment at the moment. The market collapsed in 2001, but companies have been playing catch-up since 2003, and organizations such as Vodafone, Societe Generale, and France Telecom are all growing worldwide and need to invest in IT to improve governance, productivity, quality of service, and return on investment.
According to figures from our parent company Datamonitor, France is the third largest IT services market in Europe behind the UK and Germany, and is expected to increase its spending on services projects by 6% to $25.3bn in 2007.
Capgemini and Atos Origin rank as by far the two largest vendors in the country based on their 2006 French sales. Both are more than twice the size of Sopra and Steria, which head up the chasing pack of second-tier players, which also includes GFI Informatique, Groupe Open, Bull, Osiatis-Focal, and Devoteam. Zeitoun said Atos Origin always comes up against the same three competitors on large contract bids in France: IBM Global Services, Accenture, and Capgemini.
However, the market remains fragmented. Capgemini’s market share is just 9% based on the Datamonitor market size data, while the 10 listed vendors between them account for only 30%. One of the reasons why there is a relative abundance of local IT services providers is that international players such as IBM Global Services and EDS have not come to dominate the French market as they have in other countries, largely due to the lack of major outsourcing opportunities available.
Opposition from robust local labor unions has meant that the type of broad-scope outsourcing deals involving staff and physical asset transfer that have driven IBM’s and EDS’s rise to power in the US and UK are relatively rare.
Despite a couple of large contracts for IBM Global Services and Steria, the number of major outsourcing contracts in France last year tracked by our IT Services Contracts Database actually declined compared to levels in the previous year. We logged five deals with a value greater than $100m and three worth between $50m and $99m in 2006, which was down on nine each for 2005. In contrast, we tracked 33 deals with a value greater than $100m in the UK last year.
Consolidation in the market has seen tier-two players Silicomp, Transiciel, and Unilog acquired in the last three years, and further M&A activity looks likely with several major international services vendors looking for French acquisition targets. Canada’s CGI Group snapped up the former French arm of German SAP services house Plaut Consulting last year, and HP Services and Fujitsu Services have both recently said that they are actively looking for takeovers in France.
