Gartner said the use of offshore resources as an alternative to domestic BPO is also starting to take off and, by 2007, it predicts that offshore BPO will account for 14% of the total BPO market, compared with only 1% in 2003.
"The BPO market is evolving quickly and we see many US service providers aggressively targeting Europe. Eastern Europe has become particularly attractive because of good delivery locations and many global BPO providers are ramping up their capabilities in Prague, Krakow and Budapest to take on the competition from European BPO service providers and Indian offshore providers", said Rebecca Scholl, principal analyst at Gartner.
"Mergers and acquisitions, such as IBM's acquisition of PWC Consulting and Cap Gemini's acquisition of Ernest & Young, have also contributed to a change. This has enabled the established providers to enter the BPO market, and BPO has over time become a natural extension to the traditional IT services offerings", Scholl added.
Gartner said the desire to focus on core competencies, cost reductions and customer service improvements, primarily by large organisations, are the key drivers to BPO growth in Europe.
BPO adoption in transaction-intensive processes such as payroll, card processing and claims processing continue to grow, but are now extending to enterprise processes such as human resources, finance, accounting and procurement. Several large organisations have signed comprehensive HR or Finance and Accounting BPO contracts in Europe over the past three years.
In Europe, the UK leads the way, representing more than 50% of the total BPO market. The public sector is the most active industry, followed by financial services.
"Several obstacles are still inhibiting the widespread adoption of outsourcing in France and Germany, such as legislation regarding employee transfer. The cost savings associated with economies of scale and specialisation are tempered by the costs of employee transfer. Beyond the UK, BPO adoption will grow in the Nordic countries, Switzerland and the Netherlands because of stronger cultural acceptance of outsourcing," said Scholl.