European service providers building up offshoring capabilities, says IDC

LONDON, UK – MAY 15, 2006 – According to a new IDC study, European service providers are quickly building up offshore capabilities. Large and medium-sized European service providers have already established themselves in a number of offshore locations such as India, Eastern Europe, and South America to compete with offshore-based and global service providers such as Tata Consultancy Services, Wipro, IBM, and Accenture – and plan to increase their offshore assets by 65% during 2006, according to the study.

European service providers still have a lower share of their workforce offshore than their U.S. and Asian competitors but the picture is changing.

Although some customers are still somewhat wary of offshoring, service providers have taken a strategic approach and are increasing their offshore presence now to stay in touch with their competitors.

"The European business community is part of the global economy and it would be strange if it did not expect its own suppliers to be global. The financial sector, manufacturing, and utilities lead the way," said Mette Ahorlu, senior analyst at IDC's European services group. "European service providers have been quick to see the way ahead and we believe that their ability to combine their intimate understanding of local European markets and customers with a global delivery model will give them a competitive advantage. Offshore was expected to pose a threat to the European players because their size made it difficult to establish themselves offshore, but instead it may turn out to strengthen their competitive position."

Offshoring will not only impact the high end of the market. Typically, a project should be worth $50,000 to $100,000 before the cheaper labor prices outweigh the increased project management cost of involving offshore resources. This is a normal project size for medium-sized enterprises, and the core area of operation for local and regional European service providers. "Use of offshore resources began as application development services, but has expanded to all types of application services, infrastructure services, and business process outsourcing," Ahorlu said.

"Offshore will not continue to be an 'exotic' way to save money, it will soon be taken for granted by all customers. The fact that the services are offered by the usual IT partners will help overcome uncertainties of cultural and linguistic differences and speed up acceptance."

Vendor Survey: Europe-Based Service Providers Sharpen Their Offshore Strategies (Doc #Q03N, April 2006) looks at the use of offshore resources by a number of large and midsize European service providers. It covers geographical choices, service offerings, and how European service providers position their offshore offering, as well as the competitive situation they face.

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