Europe to lead future outsourcing wave in India

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Europe to lead future outsourcing wave in India

According to Zinnov Study, European market to grow at 12 per cent CAGR, says

Monday, November 24, 2008

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BANGALORE, INDIA: Europe offers great outsourcing potential for Indian in the coming time, says a study by management consulting firm Zinnov Management Consulting.

The study, "European Software Product Market – An Opportunity Unexplored", released today, is the first-of-its-kind study on the Europe market, said a press release.

According to it, while North America contributes about 42 per cent to the Global R&D spend; the European market has a contribution of 35 per cent, followed by Asia at 22 per cent and rest of the world at 1 per cent.

Companies are realigning their global strategies in wake of the recent US meltdown and Europe continues to hold strong growth prospects for India and other countries in the region, said a press release.

"With the changed ecosystem in India and Europe, offshoring shows an aggressive growth trend," according to Chandramouli, director, Advisory Services, Zinnov Management Consulting.

"Some of the drivers that are helping increase offshoring to India are: the available talent pool in India, over the time there has been an increase in the IT spend, cost arbitrage, the innovative capabilities of India and the current exchange rate."

He pointed out that all these factors have resulted in a potential of over 8–10 billion Euros of addressable market for European companies' R&D operations in India.

Though offshoring from Europe began in the early 90s, the momentum started picking up only in the last four years and the number of Software Product Development captives in India has doubled in such time, according to the study.

The study reveals that out of the top 100 European companies, 18 companies already have 23 captive centers in India.

Of this, Bangalore alone accounts for 50 per cent of companies and one third of the captives, due to presence of high IT infrastructure and large talent pool. NCR and Chennai are the other preferred locations for European captive centers in India.

Though being a highly diverse continent, Europe has language and cultural compatibility issues from country to country, which results in limited options for offshoring work.

This further coupled with the talent available in the nearshoring destinations did not have positive results for outsourcing and nearshoring was preferred because of the comfort of proximity and ease of communication.

However, in the last decade, there has been a change in the ecosystem in Europe and India because of many micro and macro factors.

The labor laws in Europe, which were very strict earlier, have been relaxed with changes in the Government Regulation and Labor laws, thus helping companies to increase outsourcing/offshoring. And this spell big opportunity for India despite the current economic slowdown, according to Zinnov.

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