According to Technology Partners International as reported in CIO magazine, Europe has now overtaken the United States in major outsourcing deals (i.e., deals valued in excess of about $50mm). In 2004, out of $76 billion in contract value, Europe garnered 49 percent beating the United States and Asia. One of the most important statistics behind those numbers is the fact that more and more outsourcing companies are becoming major players and the competition is heating up. The article lists the big-six outsourcing companies (you’ll have to call me to find out who they said they are) and notes that in 2003 these companies accounted for about 70 percent of the outsourcing contracts, but in 2004 their share dropped to just over 40 percent—a big drop in one year. What that means is that if 26 providers shared the 100 best deals in 2003, 36 shared them in 2004, and only time will tell if the outsourcing market is saturated or if more providers will jump to the front lines in 2005. One trend we are seeing is the segmentation of outsourcing arrangements by sophisticated end-user customers. Not just seeking competitive bidding among providers as in days past, these customers are actually segmenting their outsourcing requirements by function, business activity and operational needs, and seeking niche-based outsourcing providers who are best in the class in those areas.
It seems that the tempting idea of putting all one outsourcing eggs in one basket in order to make it “easier” to manage the relationship has not proved to be very smart after all. It appears that retaining the expertise necessary to manage outsourcing relationships in-house and being sure you have the right outsourcing provider with the right contractual relationship for each function or activity is the wiser course. Speaking of contractual relationships—Rimon has a team of international lawyers experienced in outsourcing. You might want to call us if your thoughts turn to outsourcing; we can and are happy to help. You might also go get a copy of the new book, Outsourcing Agreements Line by Line, written by me and published by Aspatore Publishing—it’s available online (an unabashed plug for both the book and our ability to assist with your legal needs).