Strong growth ahead for industrial outsourcing

Cost efficiencies are encouraging the industrial sector to outsource on-site utility management, and such outsourcing agreements are increasingly associated with risk management benefits.

Cost efficiencies are encouraging the industrial sector to outsource on-site utility management, and such outsourcing agreements are increasingly associated with risk management benefits.

"Critical factors for attracting industrial customers to externalise their on-site utilities are operating cost savings, accelerated re-engineering benefits, long-term stability from integrated services, proactive support in managing exposure to legislation and full or partial risk transfer," Saana Kärki, an industry analyst at Frost & Sullivan, reports.

"The two main barriers to entry to the European industrial outsourcing markets are technological and financial – the ability to manage assets and tailored solutions, and the ability to manage financial commitments in long-term operating contracts," Kärki warned. To this end, suppliers active in prominent utility sectors, such as water and wastewater, will need to develop certain key capabilities. Significant among these will be proven technical expertise, financial stability and the ability to forge strategic partnerships.

The outsourcing of on-site utility services is currently in the developmental stage. Estimated at more than US$ 8 billion in 2002, the market for outsourcing of industrial utility services, comprising water, waste, energy and IT/telecoms, is poised to double in value by 2009. It is forecast to reach US$ 20 billion by the end of the decade.

The energy services market is likely to persist as the largest utility sector in terms of revenue generation, and be followed by the water and wastewater sector, which will experience double-digit annual growth.

"Customers still continue to favour expertise over one-stop services," Ms. Kärki explained. "Service and industry-specific requirements are therefore likely to sustain the ongoing competitiveness of specialised service providers alongside leading multi-utilities."

French companies Veolia and Suez, along with their subsidiaries, are the undisputed leaders of the European on-site utility services markets. These companies occupy the top two positions in the water, waste and energy markets. The UK and France are pioneers in the market for outsourcing of industrial utility services within Europe. With its considerable size, the less developed German market offers strong growth potential, Ms. Kärki concluded.

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