BPOs focus on $200 bn European market

The $200-billion IT services market in Europe is throwing up greener pastures for major Indian software services companies as new geographies show positive traction besides the traditional market of United Kingdom. Hitherto, UK had remained the key market for the Indian IT services majors like TCS, Infosys, Wipro—and even for Cognizant. It is estimated that more than three-fourth of these companies’ revenue in Europe actually comes from UK.

However, the current economic downturn is changing the contours for these companies in Europe with non-UK countries showing better traction. According to Jens Butler, principal analyst, IT services and sourcing group, Ovum, “The downturn has impacted the UK significantly more than most of Europe (except maybe Spain) and as such, discretionary spend has been reigned back substantially—which will impact the 25%-50 % growth rates they (Indian companies) have been experiencing to date.”

The investments made by these IT majors in countries outside of UK like Nordics, Germany, France and Switzerland are paying rich dividends for them now. For example, TCS in its latest quarterly results reveal that the contribution from continental Europe has marginally increased while it has actually declined in the UK. In the case of Cognizant, continental Europe (non-UK ) accounted for 43% of its revenue its European revenue, recording around 75% growth in 2008.

“In Europe, global sourcing of IT and BPO are relatively underpenetrated, more so in Continental Europe.... We continue to remain optimistic about the growth in Europe ,” said R Chandrasekaran, president and MD, Global Delivery, Cognizant.

“Certain country markets such as the Nordics and Germany that have been slowly moving towards more use of Indian offshore labour, have seen more momentum towards offshoring driven by a combination of the economic climate, the availability of key referenceable customers and the substitution of lower cost Indian labour to replace more expensive Western contractors,” The Bathwick Group principal Katy Ring said.

This shift has also got to do with the sizeable base of Indian IT majors in UK which is estimated to be around $3 billion and recording high growth rates in the future is expected to be very challenging.

Butler pointed out that “continental Europe is a less mature and smaller market for the Indian providers and as such, given the differing base size and experience , there is more likely to be above average growth in newer entry markets.”

BG Srinivas, head of Europe for Infosys, in a recent interview said that their revenue from smaller countries like Nordics and Switzerland is much higher than larger economies such as Germany and France.

Despite the heterogeneity of the European continent with differing cultures and languages, it is expected that this kind of a growth momentum is likely to be maintained in the near future.

Ring said: “Basically, we are seeing a time-lag effect as some country markets within Europe catch-up with the UK’s use of Indian service providers and so growth is likely to continue to be faster in Europe (from a smaller base) than in the UK.”

“The Indian vendors are not standing still and considering less traditional alternative revenue streams, be that from a service or geographic perspective,” Butler said.