Outsourcing now used by 70% of EU firms

Date: 13-08-2008
Source: The Financial Mirror

Outsourcing is favored as a business tool across Europe, according to a new survey by Ernst & Young of more than 600 decision makers in European companies. The survey highlights that 70% of respondents already outsource at least one function of their business, with 20% set to increase their level of outsourcing in the next two years, as they increasingly view it as a means to gaining a competitive edge.

The report, which surveyed senior decision makers at companies with a turnover of at least 100 mln euros across France, UK, Germany, Italy, Spain and Belgium, also found that cost savings (49%) and better quality through the hiring of specialists (33%) were cited as the biggest reasons for outsourcing. The functions most commonly outsourced were maintenance (76%), logistics (73%) and computing/telecoms (68%).

"Competing in the global economy and having to deal with a strong Euro, European firms need to be more scalable and profitable, and this is creating a general trend towards the fragmentation of the traditional vertically integrated business," explained Thierry Muller, Partner Ernst & Young France, and Leader of Outsourcing Advisory.

Belgium recorded the highest rate of outsourcing for 81% of the companies, while France had the lowest take-up rate at 63%. However, France demonstrated one of the broadest ranges of outsourced functions, with an average of five functions outsourced per company. Although a common business practice in the UK (71%), outsourcing remains restricted to an average of only three functions.

Cost savings was, unsurprisingly, the top reason for outsourcing across the surveyed countries, however, better quality through specialist skills (33%), improved strategic organization (28%) and more flexibility (25%) were close behind.

There is some concern that business cases for outsourcing are often not met in relation to cost savings, and the tide may be turning with companies realizing that cheaper isn't always better.

"Outsourcing back office functions to low cost locations could provide substantial savings, but forms only part of the bigger picture that also encompasses improvements in quality to make the organization fit for future growth," Muller added.

"The overall outsourcing experience appears to be a positive one," he said, adding that "the information age is enabling new outsourcing players to exploit the different stages of an organization's value chain, and there are clear signs that broadening confidence in the outsourcing industry will lead to its adoption over an increasingly wide range of business processes."

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