CBI: What is the demand for IT Outsourcing Services on the European market?

According to analysis of CBI (the Centre for the Promotion of Imports from developing countries), the best opportunities for ITO providers from developing countries can be found in the United Kingdom, the Netherlands and Nordics (Sweden, Finland, Norway and Denmark), as they are most open to both offshore and nearshore outsourcing.

The CBI study states that Germany and France are also interesting due to their market size. IT service providers focusing on specific sectors, business domains, niche segments, innovative technologies and/or technologies where there is a significant skill shortage, have the highest chance of successful market entry to Europe.

The CBI representatives state that “trade is a good means to stimulate economic growth and promote employment. By supporting small and medium-sized enterprises (SMEs) in developing countries entering the European market we promote the integration of these countries in global value chains. We thereby help these countries, entrepreneurs and employees profit from the advantages trade brings”.

According to estimates, the global market size of ITO totaled 16 billion in 2018. Europe accounted for 6.1 billion Euro of this total. Even though Europe has seen a decrease in annual contract value (ACV) by an average annual reduction of -6.3% between 2014 and 2018, Europe still makes up for 38% of the Global ITO contract values. Therefore, Europe remains a high-priority target region. In addition to Europe’s market size Europe’s diversity, skills shortage and the diaspora also makes Europe an interesting market for ITO service providers.

The reduction in ITO was a development specific to the European market. On a global scale the ITO market is still stable and growing annually at a rate of 0.4%. Despite the shift towards ‘as-a-service’ outsourcing ITO will remain essential in Europe and it is expected that even with ongoing macro-economic challenges digital developments will continue to push the market forward. The ISG Index’s Global Sourcing and As-a-Service Market Insights report estimates that the global ITO market will grow by 4.5% annually in the next three years.

Despite the reduction in ITO in Europe experts indicate that this decline applies to the ITO sector in general but that the portion of offshore ITO is stable. This means that the declines in ITO are less applicable to offshore service providers like you from developing countries.

The best opportunities for ITO providers from developing countries can be found in the United Kingdom, the Netherlands and Nordics (Sweden, Finland, Norway and Denmark), as they are most open to both offshore and nearshore outsourcing. Germany and France are also interesting due to their market size. IT service providers focusing on specific sectors, business domains, niche segments, innovative technologies and/or technologies where there is a significant skill shortage, have the highest chance of successful market entry to Europe

Diversity brings opportunity

Europe is a huge and diverse market for ITO services. In mid-2019, the European Union (EU) and European Free Trade Association (EFTA) nations comprise 32 countries that speak 27 different official languages and make up for a total population of 527.1 million. Although Europe is seen as one market from an economic perspective, there is massive diversity. Each country has its own characteristics in terms of doing business and it is Europe’s diversity that brings countless and diverse opportunities from the West to the East.

Developing Countries play a key role in skills shortage

An increasing number of European countries is dealing with a shortage of ICT specialists in some specific IT areas. While this situation used to be common for Western Europe, this shortage has also become apparent in other areas in Europe. The shortage depends on the country and sub sector. According to the Building a Better Working Europe survey released by Ernst and Young, the scarcest skills are in cybersecurity, artificial intelligence (AI) and robotics.

Another report, the CIO Survey 2018 by Harvey Nash/KPMG, indicates that the greatest demand for people, skills and sourcing in 84 countries (including the majority of the EU and EFTA nations) lies in the areas of Big data/analytics, technical architecture, security and resilience, enterprise architecture, business analysis, project management and development.

The IT skills shortage is expected to increase as a result of the ageing European population and decreasing interest in IT education. As can be seen from figure 2 the top five European countries with enterprises that face difficulties in filling in vacancies for ICT specialists are Czech Republic, Austria, Malta, Luxembourg and the Netherlands. The five European countries with enterprises that face the least difficulties in filling in vacancies for ICT specialists are Norway, Lithuania, Poland, Portugal and Spain.

From a skills shortage perspective it could be interesting for ITO service providers to consider the Czech Republic, Austria, Malta, Luxembourg and the Netherlands whilst paying less attention to Norway, Lithuania, Poland, Portugal and Spain. Our study about trends on the European outsourcing market provides more insights about the skills shortage trend.