It's a sad state of affairs when outsourcing firms are forced to make large redundancies

The outsourcing companies that provide IT, BPO and other services to both financial services firms and other industries are huge, international beasts, employing tens – if not hundreds – of thousands of employees across multiple geographies.

Attrition rates are quite high – at around 12-13% of employees – and as a result recruitment requirements can be vast and redundancies are not uncommon. So, why has there been such a fuss about Logica's profits warning and 1,300 job cuts because of a slowdown in its European business?

Well, for a start it's because the redundancies – that will cost the firm £80m (or £61.5k per employee) and affect "under-utilised/wrongly skilled staff" – are actually in Europe, with 450-550 going in the Netherlands and Belgium and around 450 split between the UK and Sweden.

"It's rare for outsourcing companies to cut their front-line customer facing staff, and instead most lay-offs hit administration staff in offshore locations," says Martyn Hart, chairman of the National Outsourcing Association. "In places like India, staff turnover can be as high as 40%, as companies struggle with wage inflation, and in the UK it's more like 5%."

Around 16% of Logica's 41,000 or so employees are based in offshore or nearshore locations, it says.

The redundancy announcement is also something of an about turn. In its interim report released in August, Logica was relatively bullish over recruitment, suggesting that it had plans to hire 5,000 new employees in the second half of 2011 (1,000 in France) and that it had taken on 4,100 earlier in the year to compensate for attrition.

Mammoth recruitment sprees coupled with job cuts are not rare in these outsourcing firms. Atos Origin, one of Logica's competitors, made nearly 630 redundancies in the third quarter, but still recruited over 2,500 people. Capgemini, meanwhile, recruited over 26,000 people in the first nine months of 2011, but made more than 3,000 lay offs and had over 15,000 leavers. It has over 117,000 staff, around 35,400 of whom are based in India and is taking a "cautious" approach to recruitment in Q4.

Logica relies on financial services firms for around 15% of its business, and the industry accounts for over 22% of revenues at Capgemini. Generally speaking, there should be more outsourcing work coming out of financial services firms next year, suggests Hart.

"It is increasingly difficult to gain market share in IT from financial services firms, as most have existing outsourcing arrangements in place, but there's more BPO work as well as outsourcing functions like HR, back office billing and accounting," he says. "The smart firms should also be persuading their companies to take buy better software solutions and be looking to move them to the cloud."