Outsourcing has become quite common in Germany and it is said to affect all the industry sectors. But you will witness that the extent of outsourcing significantly differs between different concerns. Some organizations, especially small and medium-sized companies, are most likely to hire external suppliers only with regard to the distinct services (for instance, certain cloud-based services to replace former on premise solutions), rather than outsourcing all the business processes. While there are companies which have a strong emphasis on particular line of products or services, who wish to outsource parts of their business (example, IT, logistics, procurement, HR and customer care etc.). By doing so, the organizations are able to free up resources and dedicate them to their core businesses and also, ensure state-of-the-art services in an area that they do not focus on.
Demand for IT Outsourcing Services in the European Market
The best opportunities for ITO providers from developing countries is said to be found in the United Kingdom, the Netherlands and Nordics (Sweden, Finland, Norway and Denmark). They are most open to both off-shore and nearshore outsourcing. Germany and France have also, joined the list because of their market size. IT service providers are highly focused on specific sectors, business domains, niche segments, innovative technologies and/or technologies where there is a significant skill shortage. This paves way for the highest chance of market entry to Europe.
Three most important factors determine whether countries are important target markets. They are market size, openness towards international outsourcing and IT skills shortage. From a market size perspective, the United Kingdom, Germany and France are potential and largest ITO markets in Europe. Together, these countries represent more than 60% of the total European market.
Buyers in Europe are increasingly on the lookout for specialized companies that are able to offer niche services. Instead of aiming for a big cost-reduction, companies are increasingly willing to pay for quality. The organizations have realized the significance of quality as a deciding factor in competitive markets. These partnerships are said to add value to the IT and business processes of both the parties.
Some Key Findings
- The biggest markets are localized in Western Europe, led by the United Kingdom, Germany and France. Western, Northern and parts of Southern Europe are facing a shortage of skilled IT experts.
- The market is very dynamic and innovation driven due to the introduction and advancement of new technologies.
- The actual demand for services depends on the company size and related industries.
- The European IT outsourcing market reached a value of approx. USD 94bn in the year 2018. It is expected to grow to approximately USD 104bn by the end of 2021, representing a compound annual growth rate (CAGR) of 3.4%.
- European companies outsource 20% of their internal IT processes today. Several companies plan to increase their outsourcing activities, especially in Western Europe.
- While traditional IT services are declining (approx. by 4% per year), disruptive technologies are leading to overall market growth.
- Companies in the United Kingdom is reported to close the most number of IT outsourcing deals as well as the highest valued ones, shortly followed by companies in Germany.
- Some industry experts even expect a bigger growth rate of 8% to 12% per year during the next years.
- The two segments “Infrastructure-as-a-Service” and “Software-as-a-Service” account for more than 40% of the global IT outsourcing market.
The Growing IT Outsourcing and Offshoring in Deutschland
As compared to the USA and Great Britain, the Germans showed considerable reservation regarding the demand for outsourcing and offshoring but with the passage of time, however, this has changed. German enterprises have realized that the key to preserving the ability to compete is the concentration on the core business and outsourcing presents the potential to reduce costs. There are several nationally and internationally successful German companies, who are working with external partners.
For German companies, it is particularly outsourcing to Eastern Europe or above all to India which is interesting because the personnel costs are considerably lower than in Germany.
More and more business processes are being outsourced by Germany as they have realized the advantages of IT outsourcing, which are:
- Reduction in cost / cost effectiveness
- Increased efficiency of business processes
- Improved service quality
- Driving innovations
- Utilization of the know-how of well-qualified specialists
- The outsourcing company is able to concentrate on its key business
- Adding financial flexibility
Low Code Development – Accelerating Business Transformation
Low code development, in the current business scenario and technology environment, is delivering a lot of benefits to organizations that include efficiency and speed to market. In the European market, you witness that the CIOs are firmly focused on navigating their organizations through massive transformation projects and there is a sharp increase in spending in low code development. It is a digital business solution that has revolutionized how the enterprises can approach the latest tech-trend and use low-code software to conquer any business challenge.
Low-code development platform, like Intrexx, fulfills your requirement when you are looking for software that can adjust to your needs and circumstances. Intrexx helps you to transform analog into digital and it enables simple and rapid development of portal solutions. The goal is to change how software was built so it could be quickly and easily deployed. Low code platforms enable business challenges to get solved faster and more effectively than ever before. Hence, German companies are trying to move towards low-code that would make the business transformation hassle-free by reducing costs and the amount of time required to build and implement a new software/application.
Due to the market’s specificity, that includes its significant competition, demanding customers and scarce programming talent, software development in Germany is not an easy endeavor. It is the biggest software market in Europe. However, there are steps you can take to explore its potential. Outsourcing services would help German enterprises enter new markets, reduce cost, boost sales and increase revenue through cost effective strategies. Realizing this, German enterprises are more open now to engage in classic outsourcing and calling on engineering service providers for software development tasks.
Asst. Manager-Marketing, RapidValue