Europe stormed ahead of the United States last year in its dash to get more business activities offshore, a report released last week revealed.
The research, from adviser TPI, showed offshore contracts rose
to a record â,¬58-billion last year, with Britain accounting for 20% of the total, making it the second biggest offshorer after the US, which accounted for 44% of all projects.
Europe as a whole accounted for 49% of the total, overtaking the US for the first time. The Asia Pacific region accounted for 7%. In 2003 the US had a market share of 47% and Europe 41%. The â,¬28-billion of outsourcing contracts awarded by European firms last year was up from â,¬25-billion in 2003 and double the level of 2002, TPI said.
”The equalisation between the European and US outsourcing markets comes through dramatic growth in Europe, not any significant decline in outsourcing in the Americas,” said Duncan Aitchison, TPI’s managing director of international business.
”European companies realise that they cannot continue to compete effectively on a global scale without utilising the increased efficiency and flexibility they can gain through outsourcing.”
The figures did show the US declining in terms of the value of contracts as well as global share. Its â,¬24-billion worth of offshoring last year was down from â,¬27-billion in 2003 and â,¬31-billion in 2002.
Research by the United Nations estimates that the US and United Kingdom could send five million jobs offshore during the next decade, provoking vociferous complaints from trades unions.
Last year, for instance, the bank HSBC said it would send 4 000 jobs offshore from the UK while the UK’s National Rail Enquiries and the insurance arm of Lloyds TSB announced they would shift nearly a thousand jobs each to India. Insurer Aviva sparked protest when it said 2 350 jobs in its call centres and IT processing sections would go east.
The US and UK tend to be the biggest offshorers because of the global dominance of the English language, although Germany is rapidly increasing its use of offshoring. Its share of the international total leapt to 12,5% last year from just 4% the year before.
Consultancy McKinsey has carried out a study showing that every dollar’s worth of business sent offshore from the US or UK creates $1,45 to $1,47 of value.
Of this, the UK or US derives $1,12 to $1,14 while 33c worth goes to the recipient country.
That is because the US or British firm doing the offshoring benefits from higher profits that are then ploughed back into new kinds of activity, creating new jobs.
Consumers in the host country benefit from lower prices and, in theory at least, from the creation of new, high-value, jobs.
TPI says Europe’s use of offshoring will continue this year.
”Judging from the pipeline of deals on which TPI is advising, European outsourcing is likely to increase yet again this year,” said Aitchison. Western firms are often used to provide advice and technical expertise when setting up centres overseas.
The TPI figures found the share of this market going to the ”big six” US firms, which include IBM, Hewlett-Packard and EDS, had fallen sharply last year because of the growth in European offshoring. — Â