Major firms here began work earlier on anchoring in the stronger economies, beside varying their approach.
The sovereign debt crisis in Europe may not have much impact on the prospects of the $60-billion Indian information technology (IT) services industry. The impact, say industry players and analysts, would be more in terms of delayed sale cycles, rather than cancellation of contracts or price renegotiations.
Europe’s contribution to the overall revenue of the top four Indian IT service companies has been growing steadily and is between 22 and 27 per cent. Of this, close to half comes from Britain and the rest from continental Europe. However, Indian players are yet to make significant inroads into government contracts and the bulk of business they do in Europe is with the private sector, which typically outsources more in a bid to save costs when there are signs of an economic slowdown.
Partha Iyengar, vice president at Gartner India, says: “They (Indian IT companies) had just started to see a trickle of work from Italy and Spain (the affected regions). If anything, the companies will see peripheral impact, which might at best lead to lengthening of sale cycles. As of now, I have not seen that happening.”
Sridhar Vedala, managing director of QS Advisory (which works extensively in Europe) feels this might just be the right moment for Indian players to get their act together. “If anything, this should bring in a positive impact. Many who had started to look at Europe immediately after the US slowdown have become a bit relaxed. Other than top players like TCS, Cognizant and HCL Technologies are yet to make significant inroads,” he said.
As for business, he feels there is enough opportunity, as European companies are keen to experiment with offshoring in a big way.
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BACKGROUND
Many of the top-tier IT players also reworked their Europe strategies a few years earlier, to gear up presence in this region. Infosys, a year before, decided to create local leadership to drive market share in those regions. Last year, the company hired two locals to head its expansion into France and Germany.
“There are some short-term challenges, but I clearly see Europe panning out well for us in the long term. We have been able to grow in Europe traditionally. And, we have made serious investment. We have hired a country manager in France, in Germany. We have created front offices in these locations. Both these countries are growing better than the rest. This means our strategy to have such a presence in these has been right,” says S Shibulal, chief operating officer and the next CEO of Infosys.
The uptick in demand for offshoring in the European market is evident from the growth that some firms have seen in this quarter. Tata Consultancy Services (TCS) and HCL, for instance, managed to grow 6.7 per cent and 5.9 per cent in the region for the quarter ended June 30. Wipro grew 2.6 per cent.
For TCS, the growth in Europe is all about investments made in the past. N Chandrasekaran, managing director, says: “I am concerned about the macro environment but we have little presence in some of the markets where the sovereign debt crisis has hit. As for countries where we are present, they are growing well.” Germany, a key region for many IT companies, expects gross domestic product growth of 3-3.5 per cent this year.
“Our strategy has been to focus on some of the strong economies like Germany, Benelux, the Nordic area, Switzerland and, to some extent, France,” said S Mahalingam, chief financial officer of TCS.
VARYING STRATEGIES
Similarly Wipro’s strategy in the European market is based on the maturity of outsourcing. For markets where it has considerable presence in terms of business like the UK and Nordic countries, it has a business unit-driven sales force. But in Germany and France, where outsourcing is underpenetrated, it has a country head-driven model.
Many mid-cap firms, too, have not gone beyond Britain. Those who have used either acquisition or a joint venture model to gain traction. Delhi-based NIIT Technologies, which recently closed a $40-million deal with Eurostar, believes the Western European economy has bounced back well, compared to other regions. “The Europe crisis, if it escalates, will not only impact the IT industry but the global economy as a whole. Europe, unlike the US, is a much more heterogeneous market. Having a local presence there is very important to get business,” said Arvind Thakur, CEO of NIIT.
NIIT took the inorganic route to gain foothold in the European market. It acquired two local companies that had presence in Switzerland, Netherlands, Austria and Germany. This also got the company access to local talent. “If you see our revenue, we are evenly split across regions. The US and Europe contribute 35 per cent each and APAC (Asia-Pacific) contributes around 30 per cent. In Germany, we have front-end and sales teams entirely of locals,” said Thakur. One of the largest clients is German National Railways.