Spending on outsourcing services in the European financial services markets will exceed the $12bn mark in 2005 - a compound annual growth rate of 9% between 2002 and 2005 - but the market will continue to be dominated by established vendors, according to a report by Datamonitor.
Datamonitor expects the strong growth - especially in the business process outsourcing (BPO) segment - will encourage new entrants, but says many will find it tough to establish themselves in an extremely competitive market.
Currently, of the thirty-four vendors that generate in excess of $10m from the European outsourcing market, just sixteen generate more than $100m and only two generate over $1bn.
In the financial services BPO space, EDS leads in terms of size of market share with six per cent, but collectively the top six control only 21% of the market, which was valued at $3.3bn in 2002. Misys has the second biggest share of the market with five per cent, followed by ADP with four per cent and Atos Origin with three per cent. Accenture and Unisys both have a two per cent share.
Anders Maehre, managing analyst for Datamonitor's financial services technology practice, says the BPO sector is likely to remain highly fragmented over the short and medium term future, with several niche markets emerging as hotspots.
"Notably infrastructure services providers and hardware vendors such as IBM, HP and Fujitsu are looking to establish a presence in the market. If successful, these vendors will establish a third group of vendors in the BPO market segment with the two established groups so far relying on their software (eg Misys and Unisys) and service (eg EDS and Accenture) backgrounds to sell in the BPO market," he says.
Datamonitor also expects to see new entrants and a rankings shift in the applications outsourcing sector as the market - which is valued at just under $1bn - is currently in rapid transition and approaching a shakeout point with aggressive pricing and competition. There will also be potential for some consolidation moves as well as partnerships between on- and off-shore vendors.
Maehre says: "Vendors to watch will especially be the main offshore ones such as Infosys, Wipro and Tata Consultancy Services."