In a recent blog I shared Everest Group’s prediction about the short-term nature of the global services market in the Nordics. Germany is also a bright star in the global services arena. However, in contrast to the Nordics, we believe Germany’s market will not mature quickly.
Germany is relatively early on in its adoption of global services. As is the case in the Nordics, global service providers serving the German market are dealing with some structural inefficiencies in Germany’s labor market. Companies are increasingly using third parties to overcome some of their constraints around labor market rules. And German firms are hungry to apply technology into their businesses.
But the market differs from the Nordics because it’s significantly larger and broader. The German market is not concentrated in a relatively few large companies. It has large and medium-sized companies in a huge market that looks to be systematically utilizing global services to address labor market challenges.
Therefore, we believe that the growth of the German market will be long, projected and unlike the Nordics, which we think will mature quickly and be short lived.
For the past two years, we’ve observed rapid adoption and market growth of outsourcing of global services in the Nordics. This is well-documented and a real bright spot for a number of global services companies. The question is: how long will this growth continue?
At Everest Group, we believe the Nordics will behave much like the Australian marketplace. The Nordics are a larger market than Australia but have similar characteristics.
Australia is a market of 20 million people and has a well-educated, sophisticated population. Aussie businesses were quick to adopt a new global services paradigm, quick on the traditional outsourcing infrastructure model and quick on labor arbitrage. However, the Australian services segments grow quickly for three to four years and then mature equally quickly.
We believe the Nordics are following a similar path. This market is limited in size and scale. Just like Australia, its business is concentrated in some large companies that have a tendency to share or to think similarly. Therefore, we believe the growth in the Nordics likely will slow down and the market will move into a mature stage within 18 months to two years.
We make this prediction based on our observation of the Australian market performance which shares many characteristics with the Nordics in terms of size, business concentration, sophistication and collegiality.