Offshore outsourcing falls as customers demand more sophistication

10 March 2015

Offshore outsourcing has fallen as UK firms focus on increasingly sophisticated work, research has found.

The UK Outsourcing Index, compiled by arvato, said 8 per cent of outsourcing contracts were offshore last year, compared with 10 per cent in 2013.

In total, £6.65 billion worth of outsourcing deals were done in the UK last year, with 55.5 per cent accounting for business functions being outsourced for the first time, up from a third in 2013.

Across different sectors, the value of energy and utilities outsourcing deals increased the most, up 187 per cent year-on-year to £1.072 billion. IT outsourcing was up 15 per cent year-on-year to £3.44 billion.

UK-based organisations are entrusting more strategic business functions to outsourcers, arvato said.

The index showed multi-channel customer services were part of 62 per cent of contracts in 2014 compared with 40 per cent in 2013. Talent management services such as recruitment process outsourcing, within HR contracts, featured in 50 per cent of multi-service HR agreements, compared with none in 2013 when it was only procured separately.

Debra Maxwell, managing director of arvato UK, said while offshoring would always have a role to play in meeting certain business needs, the demand for more sophisticated solutions, combined with salary inflation in traditional offshore locations, meant UK-based delivery would continue to dominate.

“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,” Maxwell said.

“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.”

The index recorded a 15 per cent increase in the average local government contract value, while 60 per cent of all local government contracts signed were extensions, renewals or the replacement of incumbent suppliers, up from 37 per cent in 2013.

The next most active outsourcer was the financial services industry, accounting for £1.1 billion of deals last year.

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