SLOUGH, England--(BUSINESS WIRE)--Just 8% of outsourcing contracts signed by UK-based organisations in 2014 involved work being delivered entirely offshore, the arvato UK Outsourcing Index has revealed.
A total of £6.65 billion worth of outsourcing deals were signed across the UK public and private sectors last year, according to the research compiled by business process outsourcing (BPO) provider arvato, in partnership with industry analyst NelsonHall.
The research found evidence of UK-based organisations entrusting more strategic business functions to outsourcers. Examples of this increased sophistication included: a growing demand for multi-channel customer services - found in 62% of contracts in 2014 compared with 40% in 2013; and a sharp increase in the inclusion of talent management services, such as Recruitment Process Outsourcing (RPO), within HR contracts, which featured in 50% of multi-service HR agreements, compared with zero per cent in 2013 when it was only procured separately.
Debra Maxwell, Managing Director of arvato UK, said: “Outsourcing has mistakenly become synonymous with offshoring, yet our research demonstrates that UK delivery is continuing to play a fundamental role in the industry as customer requirements become more sophisticated.
“This sophistication is perhaps most easily recognised in the field of customer services. Traditionally typified by voice and email communication, in 2014 it became the norm for these functions to be integrated with more sophisticated digital services like web chat and social media management.
“Offshoring will always have a role to play in meeting certain business’ needs but the demand for more sophisticated solutions, combined with salary inflation in traditional offshore locations, means UK-based delivery is set to continue to dominate.”
Over half of contracts represent new work
In a further sign of the health of the UK industry, more than half (55.5%) of deals struck in 2014 represented business functions that were being outsourced for the first time, rather than contract renewals or work transferring between suppliers.
This supports the fact that the UK is already a world leader in outsourcing: “The outsourcing industry employs 10.5 per cent of the UK workforce and generates around 8.5 per cent of total gross value added (GVA), according to Oxford Economics,” explains Jim Gallagher, General Manager, Supply Chain Solutions, arvato UK & Ireland.
Growth in local government, financial services and energy sectors
There were further signs of maturity in the local government market – the long time vanguard of UK outsourcing. The index recorded a 15% increase year-on-year in the average contract value (£30.3 million) while 60% of all local government contracts signed were extensions, renewals or the replacement of incumbent suppliers, rising from 37% in 2013, demonstrating that outsourcing continues to play a fundamental role in local authorities’ efforts to operate more efficiently.
The financial services industry was the most active outsourcer outside of the public sector, accounting for £1.1 billion of deals last year. The sector also demonstrated customers engaging in more strategic contracts, with 40% of deals involving the outsourcing of a combination of new IT and people-based services, compared with 25% of deals in 2013.
The value of energy and utilities deals increased by 187% year-on-year to £1.072 billion - the largest growth of any sector.
Bryan Mouat, CEO of arvato Financial Solutions in the UK & Ireland, says: “As the index findings show, there remains a strong market for outsourcing in the financial services and energy sectors. In particular customers are increasingly opting to trust outsourcers to provide complex, higher value services combining new industry-specific technology applications alongside people-based services.”
IT Outsourcing rises
IT Outsourcing (ITO) also saw significant growth, with total spend rising by 15% year-on-year to £3.44 billion.
The most in-demand ITO services were multi-scope infrastructure management, with £899 million of spend, application management, worth a combined £772 million and network management contracts totalling £485 million. The biggest customer industry for ITO was the energy & utilities sector, with deals worth £1.05 billion.
Other headlines from the 2014 full-year index include:
- Overall 37% of spend came from the public sector and 63% from UK-based businesses
- Business Process Outsourcing (BPO) represented 47.2% of deals and £3.1bn spend
- Combined BPO & ITO deals represented £109m spend
The arvato UK Quarterly Outsourcing Index is compiled by leading BPO and IT outsourcing research and analysis firm Nelson Hall, in partnership with arvato UK. The research is based on an analysis of contracts secured in the UK market during 2014.
For more information visit: http://www.arvato.co.uk/outsourcing-index