The market is thought to have peaked this year, boasting 16 per cent growth during 2000, with total market revenues expected to exceed US$10bn (£7bn) by the end of 2001.
But deeper analysis reveals that removing the UK from the equation makes the figures look a little less sexy from the point of view of businesses looking to win work across Europe. The vast majority of deals remain in the UK, the figures show (see table one for per cent of revenues by region).
For US-based and UK-based facilities management firms, breaking into the European market through existing international clients has been tougher than expected.
'International clients have taken longer to crack than many people first thought. Many of these businesses have opted for local providers and goodwill investment rather than extending existing contracts to include new European premises,' said Alan Bradford, consultant at Johnson Controls, which picked up the first major cross-border outsourcing deal in the 1990s with IBM.
However, figures from the European Integrated Facilities Management Market report by consultants Frost & Sullivan reveal that most of the success stories to-date are the result of existing contracts with global corporates. Report author Paul Alexander said: 'Many companies have a European presence because they are there with US or UK clients that are seeking pan-European solutions.'
Citex chief executive Oliver Jones believes that corporates in European countries use US-based and UK-based outsourcing companies in order to get high quality services. 'In many European countries, the local market is often not sufficiently competent or complex to support the needs of international companies so they look to US and UK providers.
'UK companies can offer services to international clients in three ways — through an alliance, joint venture or directly,' said Jones. Alliances and joint ventures with local companies are better as the client gets facilities management expertise and local knowledge, he added.
As the business world becomes more reliant on companies being able to adjust to the changing economic climate without too much disruption, the emphasis on being able to achieve flexibility and cost savings through outsourcing non-core activities is increasing. It is this growing awareness that is expected to enlarge the European market for outsourcing over the next ten years.
The most dominant market drivers for European outsourcing according to Frost & Sullivan are: companies seeking to reduce operating costs, increasing business flexibility, globalisation, PFIs and technological innovations.
While companies across all industry sectors are looking at cost-cutting methods and flexibility and are eager to establish a global presence in Europe, a number of obstacles may prevent them from achieving this.
The most powerful restraints include: dominance of in-house provision, single service providers, lack of awareness and misconception of outsourcing, resistance to change and lack of key market skills.
Outsourcing: public vs private
Traditionally, private sector investment has catalysed growth in the outsourcing market across Europe, the report states. Technology companies were the first to 'embrace the concept most keenly' as they generally have a more modern approach to business. They are cyclical and more exposed than most to fluctuating economic conditions increasing the need to outsource non-core activities to gain a critical edge over competitors. Other outsourcing corporates include, industrial, chemical and pharmaceutical companies.
Although the potential for outsourcing in the public sector is much greater than in the private sector, it is a more difficult area in which to do business, the report states. Alexander believes that one reason for this is that the public sector is often less cost conscious, and in general less efficient than the private sector.
Outsourcing on a large scale is not usually welcomed because, despite operational quality and provision being a priority, social awareness, employees' rights and stronger unions act as barriers towards change. Bureaucracy also makes the approval of contracts time-consuming.
Public sector outsourcing is valued at US$3bn (£2.1bn) in western Europe and Frost & Sullivan expects this to more than double by 2007, but admits that this figure with be dependent on the views of different European governments.
'The way integrated facilities management is rolled out in Europe is very much dependent on what happens here in the UK. They are all looking at what the outcome will be. There will be some success stories,' Alexander added.
You need a French connection to get outsourcing deals there
Alan Bradford
Private finance investment in the public sector has yet to take off in Europe, the report says, with the exception of Italy and the Netherlands.
After the UK, Germany has the largest share of revenue from outsourcing in Europe, with an estimated 23.5 per cent. But the figures for the 10-year period to 2007 are somewhat misleading. Just a few companies, which derive the majority of their revenue from their own group, account for a large proportion of this.
Citex's Jones sees Germany as the most difficult country in Europe in which to secure outsourcing contracts, followed by Spain and Cyprus.
Although there are some companies that may disagree with this on the basis of individual successes, the development of outsourcing across Germany is hampered by social issues and a conservative business environment.
'In Germany there has been a mixed reaction,' said Bradford. 'Generally, you really need to get into bed with a German company. In business and regionally, Germany is noted for being incestuous — and I think it will take a long time to change.'
Italy, says Frost & Sullivan, is the most rapidly developing market in on the continent — and this is expected to increase over the next two years.
'We have been very successful in Italy, but it has been slightly easier there. Outsourcing, and government and private sector PFI are working well too,' said Bradford.
Jones agreed: 'PFI is being widely adopted in Italy with prime government contracts, prison PFI and sale and leaseback deals.'
France generally remains hostile towards outsourcing deals, but that has not deterred companies from journeying across the channel to sell their solutions.
'In France there are massive opportunities, but like Germany you need a partner, a French connection unless companies are working for big international clients,' said Bradford. 'There are lots of expansion opportunities there and a number of fledgling firms are present,' he continued. Jones is equally optimistic about the French market.
Scandinavia, Austria and Switzerland are also performing well, but analysis reveals that just one big deal can put outsourcing on the map. Skanska's deal with Ericsson in Sweden made the outsourcing market leap in 1999-2000 following the acquisition of the telecom company's real estate and service division. Similarly Johnson Controls' deal with Novartis, for the pharmaceutical company's four sites in Basel, Switzerland, pushed outsourcing to the fore.
In Benelux, Spain, Greece and Portugal the market is still relatively small when compared to its European counterparts. Although the forecast for the Netherlands is good, Belgium is unlikely to share its good fortune.
'Belgium, for us at least, has been a bit of a disaster,' said Bradford. He believes that this is due to lack of demand and the size of the country.
The outlook for Spain according to the report is not good, but there are some that are making progress. Citex has three contracts in Spain.
Bradford believes that there is potential in the Spanish market. 'Spain is very similar to Italy, but is still quite a way behind,' he said. Although there are opportunities to be had in Spain and other less developed integrated facilities management markets in Europe Bradford believes there are still very few big building, single site opportunities.
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Outsourcing market: percentage of companies’ revenue by region
Other, Size 0 kbProportion of facilities outsourcing by sector (Europe), 1997-2007
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The Facilities Business
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