Not Ready For Outsourcing

I suppose today could be christened the european official 'what the hell gives with the euro' day. Maybe we should all buy each other presents: either to celebrate, or as a mark of condolence depending on your view. Meanwhile this news from Xansa seems to me to be deeply significant. You see there is a current of opinion around which takes the view that continental Europe - since it does not by and large communicate in English - is therefore more or less immune from the Indian services outsourcing effect. Nothing could be farther from the truth. The proof: just look at those US productivity numbers. Now it may come as a surprise to some, but European firms still have to compete with their UK and US counterparts, and these counterparts are in the process of leveraging enormous productivity bonuses from outsourcing, at the same time as, in the case of the US enterprise, they are attaining a comparative cost advantage in global markets due to the fall in the value of the dollar.

I will be saying more about this in my next post, but consider this. The French and German governments have had their say: what then is the view from the ECB? I think it's pretty straightforward: the ECB view is that what we need is a bloodletting. Or put another way, a dose of serious structural reform. The only road the national governments have left to the central bank is to go for the most painful of traditional solutions: the survival of the fittest. What this means is that those European enterprises who are willing to become 'lean and mean' will survive, while those that aren't will die. This is going to be true both in services and in manufacturing. And this is where this little 'detail' from Xansa is important. Continental Europe is not ready for outsourcing: this means the obitury columns are going to have their work cut out dealing with the queue of clients who seem destined to expire in the coming months.

Xansa the IT services company, said on Thursday revenues and profits fell in its first half and it was withdrawing from continental Europe in the tough market conditions. Alistair Cox, chief executive, said the company did not believe that the marketplace was ready there for large-scale outsourcing of IT and business processes that leveraged Xansa's Indian offshore model.

The company also announced the appointment of Thames Water's chief executive Bill Alexander as non-executive chairman. He replaces Hilary Cropper who stepped down due to illness earlier this year. Xansa said revenues fell 2.9 per cent from £232.5m ($400.9m) a year ago to £225.7m, while pre-tax profits fell 6.8 per cent to £13.8m (£14.8m). Its interim dividend per share was maintained at 1.08p. The company warned last month that the challenging market and the completion of major contracts would mean lower turnover in the second half. It said there would be an exceptional charge of £12.5m relating to a settlement with a customer over a project services contract.

In continental Europe, revenues fell 13 per cent to £2.7m and losses increased to £0.8m. Mr Cox said that because the world 'was not ready' for large-scale outsourcing it was therefore a better use of resources to focus on winning work in the UK market at a time when the UK was highly receptive to such propositions. He said Xansa would consider re-entering continental Europe when the market was more developed.
Source: Financial Times
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