UK manufacturing sector spends 132 per cent more on business and IT outsourcing in 2014

The UK manufacturing sector spent £130m on outsourcing services during the first half of 2014, representing a 132% year-on-year increase, according to the latest arvato UK Outsourcing Index.

The total volume of deals in the manufacturing sector was also up, rising by 50%, along with first time outsourcing - where the services in question were being outsourced for the first time - which increased from 33% in the first half of 2013 to 66% between January and June of this year.

The data was compiled by business process outsourcing (BPO) provider arvato, in partnership with industry analyst, NelsonHall.

arvato says the increase in outsourcing activity is being driven by broader growth in the manufacturing sector. Figures from the British Chamber of Commerce released in July, based on a survey of almost 7,000 companies in the manufacturing and services sectors, found that 42% of manufacturers reported a rise in domestic sales in Q2 2014. This represents the highest reading since the survey began in 1989.

Commenting on the strength of the manufacturing sector, Debra Maxwell, Managing Director of arvato UK, said: "While not seen as a traditional market for business process and IT outsourcing, manufacturers under increasing growth pressure are turning to outsourcers to help support non-core functions, allowing them to focus on their expansion strategies and product innovation. The flexibility and efficiency savings outsourcing provides is the ideal tonic for their growing pains."

Quarter on quarter performance of UK outsourcing

The private sector dominated the volume of outsourcing deals in Q2 2014 with a 95% share of the total number of agreements secured. Telecoms & media, financial services and energy & utilities were particularly active industries, which together accounted for 70% of total spend (£513m).

arvato's latest Quarterly Outsourcing Index once again found that BPO deals were most in demand, accounting for over half (52%) of all agreements. HR outsourcing - which includes services such as payroll, benefits administration and recruitment process outsourcing - was the dominant service line, as it was during the first three months of the year. Eight deals – 23% of total volume - worth £17m were agreed.

The outsourcing industry had a quieter second quarter than at the start of the year, with values falling by 67% to £134m, although the Index reports only a slight dip in the total number of deals, from 39 to 24. It also reported the number of first time agreements remains significant showing that the outsourcing industry continues to grow – rising from 59% to 62% of all contracts.

Debra concluded: "A number of large individual deals meant that our Index showed a bumper first quarter for the industry in terms of overall value, but the volume of new outsourcing activity has remained relatively constant. Encouragingly, the number of first time contracts remained significant, which shows the continued popularity of outsourcing as a strategic solution, particularly in the private sector. As UK economic growth continues to gather pace, we expect outsourcing to do the same."

The arvato UK Quarterly Outsourcing Index was compiled by leading BPO and IT outsourcing research and analysis firm NelsonHall, in partnership with arvato. The research is based on an analysis of contracts completed in the first half of 2014.