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HROA Report Squirrels and Nuts Forecasting outsourcing's next drivers. By Faye Holland At the February meeting of the HROA European Chapter Board, the directors discussed what they believed would be the five main issues for the industry in the near term. Participants included John Hindle of Accenture, Darren Bartholomew of Selex Galileo, Tim Palmer, then of PA Consulting, Gary Madden of BP, Howard Nelson of IBM, Sally Hunter of Kelly Services, Cathy Tracey of Alexander Mann Solutions, Henry Barenholz of Oracle, Seb O'Connell of Randstad, Paul Mallinson of Hays, and Margaret Spink of Xchanging. —The Editors As in the recent past, North America growth is strong with a robust pipeline of activity, Europe is flat, and the growth markets are active. A decade ago, Jim O'Neill coined the acronym "BRIC" to describe the new economic supergroup—Brazil, Russia, India and China. Indeed, they are still fine contenders, shaping the current and future market, but new kids are also on the block. Eastern Europe and the Middle East have no appetite to repeat mistakes, so will launch into the market with a tried and tested solution, and deliver results which may take them to market leader position. In addition, we have the countries that are hot on the "BRIC" tails—the "Civets"—Colombia (pro-business government), Indonesia (educated manpower), Vietnam (manufacturing hub), Egypt (trading hub for Europe and Africa), Turkey (services-dominated economy), and South Africa, who are all showing the same drivers already as our Eastern Europe and Middle East neighbours. In learning from the errors of the past, all these emerging regions will have the ability to accelerate through the evolution with far greater pace. But how will this translate to HR? Worryingly says our directors. The large global service providers (and some buyer companies) are seeing the migration of the experienced people in their business out of Europe—not just to Asia but also to North America, and we will start to see European market atrophy as a result. One provider referred to this as the "U.K. brain drain," where skills and leadership prominent in the U.K. are moving to APAC as a result of no growth across Europe. Time will tell what the impact will be on the scale, skills, and vitality of the European market. So why do others have so much to learn from the European market? Europe has an unprecedented level of complexity that North America does not have to encounter. From the obvious language complexities, cultural behaviour, and purchasing styles—right through to legislative restrictions and control—it's actually easier to do a deal with a government body in the Middle East than anyone in mainland Europe. The market is also shaped differently. Europe doesn't have the phenomenal benefits market seen in the U.S. Hence, deals have historically been led by payroll, which is low margin and highly demanding (for supplier and client), and at times this has left a negative view of outsourcing. Outsourcing in Europe isn't evolutionarily lagging, but growth in Europe is minimal at present, and both buyers and providers need to address the scale and structure of their outsource requirements in order to achieve the cost benefit new deals. Additionally, the public sector and its format of consortium buying will be an influential factor for the U.K. market over the next couple of years, and private and public companies will be able to learn and leverage the output of these deals. Sourcing will remain cyclical. Where countries have been challenged economically, cost-efficient service centres will reappear for on- shore and near-shore opportunities. A word of caution: Economic downturn necessitates a change in business model, but then in an upturn that model might not be the best fit. So, whilst change is essential, make sure you consider which elements can be future- proofed for when the growth returns. [20] HRO TODAY GLOBAL | SPRING 2012