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ICT Industry in Europe.

Outsourcing Fuels Business

Growth

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CONTENTS

Introduction......................................................... 3

Implications of owning own IT infrastructure Drivers to outsourcing

IT nearshoring to pick up in 2014

Risks of outsourcing

Top IT outsourcing destination selection criteria Benefits

Future trends

Trends for outsourcing

Conclusions

About INP-Software

LIST OF REFERENCES .................................

Country profile

Introduction

The Information and Communications Technologies (ICT)

sector is one of the most dynamic in Europe.

Approximately 5.3 million people in the EU are employed

in ICT jobs, in a market worth more than 670 billion €.

The largest ICT markets are Germany, the UK, and

France. But the division ranges at ICT product level. The

largest software market is France, while Spain is the

largest market for communications equipment.10

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European markets currently allocate their IT budgets

across the core areas of the market, namely hardware,

software, IT services.

Western European enterprises are heavily focused on

increasing their profitability given that the tough market

conditions often make it hard to achieve revenue

growth. Consequently, IT decision makers in the region

place a high degree of importance on the business

objectives of raising efficiency and cutting costs.10

Implications of owning own IT infrastructure

According to 2013 EMEA IT Leadership Report, over the

next 12 months CIOs in Europe need to facilitate some

critical goals: to do more with less budget (mostly cited by

the UK respondents 45%) and overcome shortage of IT

staff (prevailed by responders in Germany 31%). Looking

back over the past years, IT leaders have reported that

they regret over some IT decisions, specifically,

purchasing IT assets, that turned out to higher costs and

wasted resources. However, European CIOs tend to lag

behind their counterparts in the U.S.3

Organizations who agree that they have IT equipment they

now regret purchasing.

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Given the number of benefits, it is not surprising that within

five years IT leaders expect a huge 40% of their

infrastructure will be outsourced, a global average rise of

15% from 25%, that is currently outsourced now.

Organizations in Finland, Spain and the UK outsource

services to external service providers more often than

other countries. In these countries, the highest percentage

of outsourcing is seen in IT services, such as application

development, IT helpdesk, infrastructure and testing, but

also payroll services1.

Drivers to outsourcing

As competition within Europe continues to rise, companies

are increasingly more open to outsourcing as a valid

means of cost reduction, particularly with regard to IT and

business processes. In 2013 the main reasons for

outsourcing were cost reduction (42%), followed by

efficiency improvement and a greater focus on core

business. Access to specific knowledge and expertise was

a key benefit in Norway, Sweden and the UK.1

Furthermore, certain industry sectors are more willing to

outsource than others, and there is a mixed picture

concerning the desirability of onshore, nearshore and

offshore service provider locations. Approximately three

quarters of IT services remain in-house, indicating that

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even a mature market, such as ITO, demonstrates large

potential for growth in the coming years.1

IT nearshoring to pick up in 2014

The latest IT Sourcing surveys demonstrate that the

majority of enterprises in the EU would transfer their IT

support/development nearshore rather than offshore, if

they make such a decision in the near future. This

tendency is predicted to be the leading one for the next 5

years.

In 2013 the majority of companies 85.6% (64% in 2012)

preferred nearshore locations for the outsourcing budget

allocated within Europe.4 In contrast to offshoring,

nearshoring is the transfer IT processes to companies in a

nearby country, typically with the same, or close time

zone.

Location of outsourced services per country

Poor communication with vendor’s team as a result of

cultural and linguistic differences were named by CIOs as

the main barriers to outsourcing. That’s why nearshoring

has a lot of benefits and is going to stay the most popular

ITO destination, followed by onshore outsourcing.

When organizations decide to offshore processes they

often omit researching the local culture and understanding

how to bridge cultural differences, and only a small

number of companies implement mitigating activities to

reduce the risk of dependency. Although organizations

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face many risks overall when outsourcing services, they

are capable of managing them, as they continue to

outsource.

Risks of outsourcing

The perception of dependency on the external service

provider is often seen as an important risk for

organizations1. CIOs also name contractual obligations are

the main barrier to outsourcing, while in the UK company

culture combined with an unwillingness to relinquish

control were the main inhibitors. In particular, heads of IT

in public healthcare and the software industries are most

likely to decline outsourcing because they feel more in

control if they manage the infrastructure themselves.3

Top IT outsourcing destination selection criteria

The most decisive factors in the choice of ITO destination

among European organizations are vast pool of IT talent

with an excellent command in foreign languages (e.g.

English) and cultural similarity.6

When choosing their ITO hubs, the UK and Swedish

companies also make sure of the economic and political

stability7, while low costs is also among top three factors in

the choice of an ITO partner for CIOs in Germany and

Norway.

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Benefits

Overall, the service provider community showed strong

satisfaction performance with 87% satisfied with their

outsourcing contract in 2013. 78% of companies would

continue to outsource more while another 36% indicated

that there would be no change in their outsourcing

activities.9

Globally, CIOs told that the top three benefits of

outsourcing, a utility based model in particular, are cost

reduction and containment (39%), infrastructure scalability

and flexibility (39%) and improved quality of service (37

%). However, the benefits are perceived differently around

the world, with 39 % of IT leaders in the UK saying that

cost reduction and containment is a benefit, compared to

32% in Germany.3

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Future trends

It is clear that internal and external staffing will remain the

largest component of IT budgets (53.5% globally). This

trend is visible since 2009. In 2009 in-house staff counted

39% of the IT budget; but now projected to be 29.1% in

2014. Also in-house hardware/software infrastructure

started at a higher percent of 33% in 2009 and projected

to be 26.3% in 20144. Since the budget for IT staffing is

decreasing from 67.0% in 2009 to 53.5% in 2014, IT

leaders expect to outsource 70% of their IT infrastructure

by 2018.5

PAC revealed that 36% of European businesses will

spend more on digital transformation in 2014 than in 2013.

It also revealed that 48% will spend more on mobile

devices and applications, and 37% will spend more on

business intelligence software. By market segment, the

researcher expects strength in SaaS, mobile, big data and

smart apps to streamline business processes.

Prediction of outsourcing market per country

Forrester Research expects Europe the market growth will

be strongest in Scandinavia, the UK, Ireland and Poland,

with estimated increases of around 3%. Markets such as

Germany, France, Belgium, Switzerland and Austria will

grow a more modest 1.5-2.5%. A strong growth in Latin

America and Eastern Europe is also predicted.

Trends for outsourcing

For 2014 it is estimated that outsourced IT services will

increase both domestically as well as offshore.

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The outsourcing market is changing as many companies

now consider value to be measured less by costs saved,

and more heavily based on agility and the quality of

service delivery. This is increasing the pressure on

outsourcers to find innovative ways of delivering value to

clients, while ensuring that contract requirements are

maintained11. IDC study identifies that 2014 seems to be

shaping up as the year in which the traditional outsourcers

will need a dual strategy of protecting their installed

customer base and deals while also elevating strategic

investments in new delivery models from cloud services to

platform-based capabilities that will require restructuring of

existing business models, service portfolios and talent.

CONCLUSION

More than in many other sectors of the economy, the IT

industry is constantly under the pressure of change,

innovation, growth, emerging technologies and new

business models.

While the expected recovery from the recession presents

new challenges and opportunities for European IT market

in 2014 and 2015, IT executives are set to leverage both

global and local IT opportunities (such as increased

spending and hiring, business intelligence, virtualization,

and outsourcing) to overcome not only global challenges

but also local IT and business challenges.4

Outsourcing services in 2014 are expected to grow, driven

mostly by hosting infrastructure services and hosted

application management services. Nearshore is the most

preferred ITO destination among European countries, and

this tendency is predicted to be the leading one for the

next 5 years.

At INP-Software, outsourcing is at the heart of what we do

for partners. With our best-of-breed IT services and

software solutions we promote business agility, provide

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transparency and control over IT cost models; and

maximize the adaptability of IT operations across a broad

portfolio of IT services.

About INP-Software

INP-Software is dynamically growing Ukrainian IT

offshoring company providing full cycle software and web

development services. Having more than 7 years of

experience the company has successfully cooperated with

American, German, British, Israel, Belgian, Dutch, French,

Russian and other companies.

Our services:

- Application Development

- Enterprise Solution Development

- Web Development and Design

- Mobile Development

- Quality Assurance & Testing Services

- Software Migration

- Re-Engineering & Optimization

Choosing INP–Software you can focus on your core

business while delegating time consuming processes to

our talented team of developers, QA engineers and

managers. Our mission is to accelerate your business!

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Contact details:

INP-Software

64 Dovzhenko str, Zhytomyr, Ukraine.

Tel.:

Email:

Web: http://www.inp-software.com

Follow us

Resources

1. EY, 2013 Outsourcing in Europe. An in-depth review

of drivers, risks and trends in the European

outsourcing market.

2. Schlack, M. (2014). 2014 Priorities Europe.

TechTarget Retrieved from

http://book.itep.ru/depository/forecasts/2014_Priorities

_Europe.pdf

3. Savvis.(2013) EMEA IT Leadership Report IT

Infrastructure.

4. Derksen B., Luftman J.(2014) Global Institute for IT

Management European key IT and Management

Issues & Trends for 2014. Retrieved from

http://blog.cionet.com/wp-

content/uploads/2014/02/ITTrends_2014print.pdf

5. Global IT Trends: IT Outsourcing Fuels Business

Growth(September 2013), Savvis.

6. Pan-European IT Outsourcing Intelligence Report

2011

7. European IT Outsourcing Intelligence Report: United

Kingdom 2012

8. European IT Outsourcing Intelligence Report 2011:

Germany

9. IT Outsourcing Study Europe 2013, Whitelane

Karl Flinders, (1 December 2014), European IT market

will begin slow recovery next year, computer weekly

Retrieved from

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http://www.computerweekly.com/news/2240211415/

European-IT-market-will-begin-slow-recovery-next-

year

10. ICT Investment Trends in Western Europe -

Understanding ICT Spending to 2014 (July 2013),

Kable

11. 2014 Global Outsourcing and Insourcing Survey

results (May 2014), Deloitte Consulting LLP

Country profiles

Germany

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UK

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Sweden

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