Britain extends lead as Europe's top business outsourcer

LONDON Tue Jan 22, 2013 9:46am GMT

Flags are seen above a souvenir kiosk near Big Ben clock at the Houses of Parliament in central London June 26, 2012. REUTERS/Paul Hackett

Flags are seen above a souvenir kiosk near Big Ben clock at the Houses of Parliament in central London June 26, 2012.

Credit: Reuters/Paul Hackett

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LONDON (Reuters) - Britain reinforced its status as Europe's leading outsourcer in 2012, with the annual value of commercial contracts awarded in the country up by a fifth, as companies sought ways to cut costs and stay competitive.

The often controversial practice of shifting jobs to a separate company, either domestically or abroad, increased markedly in the relatively mature British market while falling back slightly in the Europe, Middle East and Africa (EMEA) region as a whole.

Figures published by outsourcing consultancy Information Services Group on Tuesday showed that new or restructured commercial sector contracts worth 3.66 billion euros (3 billion pounds) a year were awarded in Britain in 2012, up 20 percent on 2011 and well above the five-year average.

In the EMEA region the figure, which includes Britain, fell 12 percent to 8.2 billion euros, after a record year in 2011, helped by a post-financial crisis outsourcing boom.

Lee Ayling, a partner at KPMG who works on outsourcing deals across the public and private sector said the uncertainty created by the ongoing sovereign debt crisis in Europe meant some firms put off large strategic decisions last year, though he thought it was a temporary phenomenon.

"As soon as there is a degree of economic uncertainty, normally decisions to outsource will stall for about three to six months ... we saw the same with the UK in 2008," he said.

Ayling added that Britain benefited from sharing a language with the world's number one client, the United States.

Large service providers, particularly those in India such as Wipro and Tata, have struggled to achieve the scale needed to offer worthwhile cost savings in the rest of Europe, because of the language barrier.

Outsourcing in traditional areas like IT is on the decline in the EMEA region, hitting a five-year low of 5.1 billion euros in 2012, as companies in mature economies move into what the industry calls second- and third-generation deals involving back office functions like HR and finance.

Business Process Outsourcing (BPO), which includes those HR and finance outsourcing deals, grew 28 percent in the region last year, with many London-listed firms such as Serco and Interserve benefiting from the new wave of work.

Britain also now accounts for 85 percent of the European public sector outsourcing market.

Prime Minister David Cameron's government has been keen to appear open for business to help it meet stringent budget deficit targets and encourage a sector tarnished by the G4S debacle at the London Olympics.

Several analysts have now upgraded G4S to a top pick for 2013, including Caroline de La Soujeole from Seymour Pierce.

"It just can't be frozen out of the market, due to its size and expertise," she said.

(Corrects consultancy name in paragraph 3 from International Services Group)

(Reporting By Christine Murray; Editing by Helen Massy-Beresford)

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