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EU enlargement is changing the face of European business, says Economist report     Intelligence Unit and sponsored by Ernst & Young and Oracle.    EU enlargement provides the expensive West with a convenient and cheap base for manufacturing and services on its very doorstep, while medium-sized companies in Central Europe are discovering new opportunities.    The report says that foreign direct investment is continuing to flow into the new member-states. The security of EU membership has encouraged some very     large investments, such as the auto plants being built in Slovakia.    It also found that increasing numbers of local firms can supply the multinational plants. Ten years ago, virtually no Central European firms could meet multinationals’ quality requirements. This is slowly changing as clusters of firms emerge and develop the necessary quality.    The report also concludes that, thanks to lower transport costs, Central Europe can compete with China on     cost for certain goods destined for EU markets, particularly bulk goods. Many things, such as cars and televisions, can actually be made more cheaply in the new member states.    The report says that new member states are well placed to expand investment in the vast markets of the CIS. Many Central European firms are expanding eastwards, reckoning that they understand the fast-growing Balkan and CIS markets better than Western multinationals. In time, this could help     expand the European market to cover the entire continent.    Central Europe is starting to forge some home-grown multinationals, according to the report. Most Central European firms accept they are too small to make much of a dent in Western markets. However, they have faced Western competition for a decade already at home and they are now growing in size by expanding to the east.        The expansion of the European Union is changing the way companies approach business in Europe, according to Rethinking Central Europe: business dynamics in the enlarged EU, a new report written by the Economist

Outsourcing contracts shrink as use of offshore locations rises     Companies are awarding smaller outsourcing contracts according to the latest Quarterly Index from TPI, the sourcing advisory firm. The average value of larger contracts signed worldwide to date in 2005 is €183m, down by almost a quarter (24%) from €240m a year ago. The trend is particularly intense in the European market, where average contract value is down 37% on this point in 2004. It also appears to be gaining momentum, with the average contract value in the last quarter only a third of the average value in the same quarter of last year.        However, the number of outsourcing contracts continues to rise, being 11% higher than it was a year ago.    TPI attributes the trend to smaller deals to three principal factors: firstly the impact of price competition, due to the increasing use of offshore resources and the associated lower labour costs; secondly, a typically lower capital component, because contracts are less likely to involve the transfer of assets to the outsourcing vendor; thirdly, a growing tendency to select more specialist providers. This last factor is     particularly significant: in the past two years 80% of deals have focused on a single process or function, compared with only 65% three or four years ago.    The trend to smaller average contract values is further evidenced by only eight mega deals (contracts valued at over €800m) having been signed this year compared with 13 by this point in 2004. Moreover, a growing proportion of these mega deals are restructurings rather than entirely new contracts. 38% of those signed so far this year were restructurings – far more than ever before.    TPI’s figures also     show that the use of offshore locations continues to increase. Very little information is available on the breakdown of outsourcing between onshore and offshore operations. However, an examination of deals on which TPI has advised shows that 44% of contracts signed so far this year involved offshore components or ‘global service delivery’, up from 40% in 2003 and 2004. According to TPI, more BPO than ITO deals now have offshore components - a reversal of the norm in previous years.    TPI data also reveals that a considerable     number of outsourcing contracts awarded in the last seven to 10 years are now nearing an end. The company estimates that 128 contracts, originally valued at over €32bn, are coming up for renewal in 2006. Over 70% of this potential contract value is under contract to CSC, EDS and IBM. Although it is not yet certain how competitive the contract renewals will be for these incumbents, TPI experience suggests that about 25% are competitive and that the proportion is increasing.