Outsourcing: Differences Between European and US Companies

European and US companies are competing with each other, and showing their differences on outsourcing. According to Ernst & Young’s “European Outsourcing Survey 2008”, 70% of European companies are already outsourcing at least one function of their business, with 20% set to increase their level of outsourcing in the next two years, as they increasingly view it as a means to gaining a competitive edge.

The survey is consisted of interviews with more than 100 business leaders from companies with an annual turnover more than 100M euros in France, the UK, Germany, Italy, Spain and Belgium. Moreover, the survey found the main reasons for outsourcing were cost savings (49%) and better quality through the hiring of specialists (33%). The functions usually outsourced maintenance (76%), logistics (73%) and computing/telecommunications (68%).

Companies from Belgium recorded the highest rate of outsourcing with 81%, while France recorded the lowest start rate at 63%, though they established one of the widest ranges of outsourced functions, with an average of five functions outsourced per company. Although a widespread business practice in the UK (71%), outsourcing remains limited to an average of only three functions.

European firms need to be more scalable and profitable when competing in the global economy, having to deal with a strong euro is creating a general movement towards the disintegration of the traditional vertically integrated business.

However, in the US, outsourcing is more multifaceted or complex, particularly in the manufacturing division as soaring fuel and transport costs raise concerns.

The outlay of shipping an average container from Shanghai, China, to the US eastern seaboard, as well as inland costs, has tripled since 2000 and will triple again if oil prices reach $200 per barrel as some experts predicted.

According to the survey by the National Association of Manufacturers, nearly half of North American manufacturers consider the US is the most attractive country for business growth in the next three years, and more than half expect to become more globally competitive in the next five years.

However, it may impact the fuel prices, sluggish or even reverse outsourcing in some business sectors; it will not cause a dramatic shift in the globalization of the supply chain.