What trends offer opportunities on the European outsourcing market?

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1 What trends offer opportunities on the European outsourcing market? There are many promising trends in the European outsourcing market. Your main opportunities lie in cloud computing, big data, mobile and social, as well as in the Internet of Things, Industry 4.0, virtual and augmented reality and graphic design. The skills shortage in Europe and increased demand for added value and specialised service providers also offer opportunities. Depending on your location however, geopolitical instability may pose a risk. Contents of this page 1. Growing demand for cloud computing 2. Big data revolution 3. Booming demand for mobile application development 4. Growing market for social media services 5. Internet of Things on the rise 6. Industry 4.0 the Industrial Internet of Things 7. Virtual and augmented reality become widely available 8. Outsourcing graphic design services is the next big thing 9. IT skills shortage drives outsourcing 10. Search for added value 11. Geopolitical instability influences the selection of service providers 1. Growing demand for cloud computing Cloud computing continues to be a major trend in the European outsourcing market. It uses online remote servers to store, manage and process data. This means companies don t have to use local servers or computers for these services. The main advantages of cloud computing are: flexibility in costs customers only pay for what they need/use flexibility in scaling operations and self-service customers can order/create new services online 19% of European businesses use cloud computing services, according to a 2014 Eurostat study. However, cloud computing is especially popular in Northern and Western Europe. For example, in 2016, 90% of British businesses are running at least one application in the cloud. Industry experts estimate that up to 80% of businesses will have the majority of their operations in the cloud within three years.

2 Software and Business Processes as a Service offer good opportunities There are several types of cloud computing: Infrastructure as a Service (IaaS) the service provider offers infrastructure components such as hardware, servers and storage space via the internet Platform as a Service (PaaS) the service provider offers an online computing platform for the creation of applications Software as a Service (SaaS) the service provider offers and manages complete online software applications Cloud computing offers you interesting opportunities. It allows you to work from any place at any time, which is ideal for nearshore/offshore locations. SaaS is the largest cloud computing market and most promising for you, as a small/medium-sized enterprise (SME). IaaS and PaaS require high investments, which usually only large providers can afford. Data security is a major requirement Data security and reliability are important challenges in cloud computing. European companies generally perceive data security in offshore locations as inferior to that of onshore or even nearshore competition. This makes data security an even greater challenge for you, as a service provider in a developing country. You need to show potential European buyers that your services are as secure as those of onshore providers. For example, by: applying for security standards like the ISO series on information security use a large cloud service provider s environment for your web-based software or Business Process service Target Northern and Western European companies, where cloud computing is especially popular. For a ranking of cloud computing readiness per country, check the BSA Global Cloud Computing Scorecard. Give your applications/services a European look and feel in terms of language and interface. Focus on Software as a Service. Invest in a secure, reliable infrastructure to provide maximum data security. You can make your services available to your customers via the IaaS or PaaS solutions of large providers. Install your applications on an online environment (IaaS/PaaS) of a large provider and offer it as a cloud service. Identify which platforms have the best market penetration in your European target market(s). Gain knowledge of and experience in these platforms. For more information, see our study about cloud computing services on the European market. 2. Big data revolution Demand for big data services is increasing rapidly. Many, especially large, companies and

3 organisations have mountains of data that they do not use. This is often referred to as big data. Where until recently working with big data used to be a hype, it is now becoming the norm. To maximise the benefits of big data, it should be properly: collected structured stored analysed harvested displayed This could provide companies with real business opportunities, for example in: innovation business intelligence sales/marketing insights brand reputation management However, doing this effectively takes time and resources. Outsourcing this work allows companies to stay focused on their core business, while receiving new insights. Data collection services and tools are in high demand European companies prefer to perform the analysis of their data in-house. However, data collection services and tools offer opportunities. Data collection procedures are relatively standardised and do not require complicated analytical skills. This makes it a relatively easy service for you to offer. Focus on larger European companies, as they tend to be more interested in big data services than small companies. For more information, see our study about big data services on the European market. 3. Booming demand for mobile application development The use of mobile devices like smartphones and tablets has already become a commodity in Europe. New operating systems are emerging, resulting in increasing demand for mobile application development. Many European companies outsource mobile application development to specialised service providers. The main reasons for outsourcing mobile application development are: lack of human resources lower costs focus on core competences This offers you interesting opportunities. Especially because, as a provider from a developing country with relatively low wages, you can provide such services at a lower price than onshore or nearshore service providers. Tailor-made and enterprise apps are most promising The market for standard mobile application development may soon become saturated. There are so many standard applications available, that it becomes difficult to generate enough downloads. Your most promising strategy would therefore be to develop tailor-made mobile applications.

4 Mobile applications that allow companies to simplify work processes and increase efficiency are especially promising. Cloud computing drives the demand for these enterprise apps. Employees and customers increasingly want to have applications available on their mobile devices. The enterprise market is especially interesting because: enterprise apps generate a greater revenue than consumer apps most developers target the consumer market, making the enterprise market less competitive Distinguish yourself from competitors. Competition in this market is fierce, as there are many providers offering similar services worldwide. However, the lack of human resources in Europe provides good opportunities. Closely follow developments in new operating systems that are emerging. Focus on tailor-made mobile application development. Focus on enterprise apps, rather than consumer apps. For more information, see our study about mobile application services on the European market. 4. Growing market for social media services Demand for social media services is increasing. Social media has become important to both consumers and businesses. For example: relationship networks Facebook, LinkedIn blogs and microblogs Twitter, Tumblr multimedia communities Instagram, YouTube, Flickr discussion forums review sites As the popularity of social media continues to rise, European companies increasingly invest in: content management writing and publishing content for social media platforms monitoring and listening monitoring what is said about the company customer service interaction with customers before, during and after a purchase analysis researching and analysing data from social media marketing promotion activities to generate leads and sales Because they lack the necessary time, resources and expertise, many European companies outsource social media services to specialised providers. Target markets you share a language with are your best option Language skills are essential for social media services. Therefore, about 90% of social media services are outsourced to local providers. To compete, your employees need to be fluent in the language of your European target market. Especially if you provide content management and customer service.

5 Focus on target markets your employees share a language with. For more information, see our study about social media services in Europe. 5. Internet of Things on the rise The Internet of Things (IoT) is on the rise, both with consumers and businesses. It refers to (even everyday) objects being connected to the internet. These things are embedded with electronics, sensors, software, actuators and network connectivity. This allows them to: collect data send data receive data Examples of the main areas of the Internet of Things include: Travel smart parking personalised travel experience fleet management Farming smart farming soil preparation livestock monitoring Homes & cities security and surveillance smart domotic systems energy reduction Healthcare activity trackers electronic health monitors biomedical sensors Everyday life smart clothes payment and ticketing location services This technology is becoming cheaper as it develops, which adds to the popularity of the Internet of Things. There are around 6.4 billion connected things in Gartner estimates this could be as many as 21 billion connections by 2020, about 6 billion of which in Europe. Germany, the Netherlands, Sweden and the United Kingdom are leading in capability and initiatives within Europe. This makes these countries your most promising target markets. 55% of businesses consider the Internet of Things an integral part of their Business Process Outsourcing, according to the Vodafone IoT Barometer It limits the investment and offers companies an external perspective on the possibilities. This offers you interesting opportunities.

6 Cross-industry devices are catching up with industry-specific devices The majority of Internet of Things connections are consumer devices. Around 36% of connected things are business devices. Business devices on the internet of things can be divided into: cross-industry devices used in multiple industries, mainly to save costs, such as building management systems vertical-specific devices used in a specific industry to improve efficiency and accuracy, mainly in healthcare and manufacturing Most connected business devices used to be industry-specific. However, by 2020 cross-industry devices are expected to be the majority. Because specialised devices are more expensive than generic devices, both types offer good business opportunities. Focus on Germany, the Netherlands, Sweden and the United Kingdom. Study your potential client s company well. Show your expertise by suggesting specific opportunities for their company to benefit from the Internet of Things. Focus on healthcare, manufacturing or cross-industry devices. Offer big data skills to analyse the data from the devices. If you specialise in call centre services, you can apply this to related services like monitoring devices and specialised support. For more information, see our study about the Internet of Things in Europe. 6. Industry 4.0 the Industrial Internet of Things Industry 4.0 is more or less the industrial Internet of Things, the fourth industrial revolution. It covers the current trend of automation and data exchange in manufacturing technologies. In other words, it is the basis for the smart factory. It uses cloud computing to collect and analyse the big data of all connected devices. Industry 4.0 was a major theme at the Hannover Messe European companies often use the Industrial Internet of Things to capture new growth through (one of) these three approaches: boost revenues by increasing production and creating new hybrid business models exploit intelligent technologies to fuel innovation transform their workforce Tip Many companies are just now beginning to make the transition towards Industry 4.0. Therefore it may not be easy for outsourcing providers to sell their offerings. It is recommended to target European companies that already have some experiences with big data and/or the Internet of Things. They are probably more open to Industry 4.0 outsourcing solutions.

7 7. Virtual and augmented reality become widely available Virtual Reality (VR) technology uses software to replicate a real or imaginary environment. It allows a user to interact with this environment by simulating their physical presence. Augmented Reality (AR) technology overlays computer-generated information on a live view of a real environment. It enhances the view and allows the user to manipulate the information. VR and AR technologies are popular among both consumers and businesses, in applications ranging from games to healthcare simulations. Although predictions vary, industry experts agree that VR and AR are set to thrive. They forecast exponential growth. Statista, for example, expects the VR and AR market size to increase from 3.3 million in 2016 to 108 million in 2018, to 360 million in This is because technological developments now allow widespread access to VR and AR. For example: less bulky hardware less expensive hardware highly developed graphics VR sensors in mobile devices European companies that use VR and AR technology usually don t have the necessary expertise to develop their own system and contents. This offers you interesting opportunities. Be curious and proactive in seeking out innovative technology. VR/AR technologies are expected to take over many parts of existing interfaces, such as shopping, education and some forms of live entertainment. Therefore, these applications for VR/AR may be interesting to focus on. The social side of VR/AR also offers good opportunities. Content creation of visual effects is a promising type of service offering for outsourcing providers. 8. Outsourcing graphic design services is the next big thing Every European company uses some form of graphic design for their visual communication. For example: logos and branding advertisements posters billboards websites product packaging They often outsource this type of work to save costs and because they don t have the in-house skills. Graphic-related businesses provide you with steady assignments In some industries, graphic design is essential to their core business. These are especially promising target markets for you, as these companies generate a consistent flow of assignments.

8 For example: marketing agencies photo and film studios printers and publishers Tip Focus on graphic-related businesses that provide you with a steady work supply. 9. IT skills shortage drives outsourcing There is a considerable Information Technology skills shortage on the European market. The European Commission expects there could be up to 825,000 unfilled vacancies for IT professionals by % of European companies that were recruiting IT professionals reported hard-to-fill vacancies in a 2014 Eurostat study. Technologies are quickly developing and emerging, requiring new IT skills. However, these skills are not widely available on the European market. Up-to-date IT skills needed to provide IT services on the European market There are several causes for this European IT skills shortage: the number of IT graduates has decreased by more than 20% since 2006 the number of IT jobs increases by about 100,000 per year due to quick IT developments, there is a mismatch between available and required skills There is a shortage of, for example: academic IT architects and programmers professionals in big data, mobile computing and cloud computing The IT skills shortage on the European market leads companies to outsource IT-related services to providers outside Europe. If your employees skills are up-to-date, this offers you interesting opportunities. Closely follow IT developments and build capacity in relevant technologies. For medium and long-term technology trends, check Gartner s emerging technology hype cycles. Make sure your employees skills match the current needs of the European market, for example by offering them courses and workshops. Emphasise the professional skills of your employees in your marketing. Combine this with other advantages of outsourcing to you, such as the lower cost of these skills. Refer to the E-skills monitor Europe for information about the European IT workforce, practitioner jobs and demand. 10. Search for added value The European outsourcing market has matured significantly, especially in Northern and Western European countries. For first-generation outsourcers, saving costs is the main driver for

9 outsourcing. However, second-generation outsourcers are now looking for added value to further develop their relationship with service providers. Experienced outsourcers need a professional partner Experienced outsourcers have become more demanding in their requirements in terms of: quality communication technical expertise experience certification They want their service providers to act as business partners, who know their business and help drive efficiency and development. This means you need to prove you are a professional company, offering high-quality services. Tip Show that you are a professional company, by: having good references obtaining relevant industry certification responding quickly communicating regularly offering constant quality complying with contractual agreements having a good management team to lead the outsourcing project For more information, see our study about buyer requirements on the European outsourcing market. Focus on building up a partnership with European buyers. Invest in understanding the company culture of your buyer, as this can be one of your biggest challenges. For example, organise knowledge transfer sessions at the beginning of a partnership. Send employees to work at the outsourcer s company for certain periods, so they can deepen understanding and exchange cultural knowledge. Invest in a solid Service Level Agreement (SLA). This is a vital part of the outsourcing contract, in which the service is formally defined. SLAs are an effective way to quantify and continuously improve the services you provide to your customers. Develop SLA contents together with your customer. Key factors are risk and reward sharing, flexibility and mutual benefits. 11. Geopolitical instability influences the selection of service providers European companies consider the risks of doing business in a particular country when selecting their service providers. Recent incidents relating to geopolitical instability make country risk an increasingly deciding factor in the services outsourcing market.

10 Contingency plans give you a competitive advantage Although geopolitical stability is generally out of your control, you can protect your business from potential negative effects. To (re)assure your existing and potential clients that you can provide continuity, you need to have contingency plans in place. Include, for example: back-up and recovery schemes network and infrastructure security communication plans relocation options Identify possible geopolitical risks in your area. Develop contingency plans to minimise the effect of any possible incidents on your business. Clearly communicate these contingency plans to both your existing and potential clients. Please review our market information disclaimer.