Is Europe the next best market for IT?

MUMBAI, INDIA: Not so long ago, the US remained a primary revenue market for companies from India.

With a bludgeoning economy and dollar dreams firmly in place, it made sense to make your presence felt in the US. But the situation has changed now.

The need to diversify geographically and the rising rupee against the US dollar have resulted in a situation where countries from Europe have emerged into the field.

The year 2007 saw a lot of changes on that front. On the first day of the Nasscom Leadership Forum 2008 in Mumbai, worldwide leaders came together to concur that Europe is increasingly becoming a destination for outsourcing activities.

Mark Mayo, partner president, Global Resources Management, TPI put forth his opinion. “We project around seven per cent annual revenue growth in 2008. EMEA (Europe, Middle East and Africa) and Asia Pacific showed increased demand during 2007 and are poised for continued momentum in the near future," he said.

"As markets for outsourcing, India and China grew significantly in 2007. We are beginning to see signs of vertically oriented BPO. For EMEA, there were 17 fewer contracts year on year; accounting for nearly $8 billion more in total contract value year on year,” said Mark.

The first and foremost question was - Why focus on Europe?

Mayo said that the focus on Europe was primarily based on diversification from a geographic perspective.

Also, rupee appreciation continued to have an impact on the perspective of Indian companies. Other critical issues include the impact of the economic slowdown of the US markets.

Hubert Tardieu, executive vice president (Consulting), ATOS ORIGIN, said, “European markets are growing. We see more and more of packaged solutions compared to custom solutions. The potential outsourcing of European market is growing at a CAGR of 8.13 per cent. Global sourcing is high in countries such as France and Germany."

"However, countries such as Spain and Italy are in the nascent stages of offshoring. In such a situation, you need to have same processes both in the front end and at the back end of your office if you have succeeded in the fixed pricing company. Outsourcing of application management is catching up with infrastructure management. To become successful in European market you must have different skills and capabilities,” said Hubert.

Sanjiv Suri, managing director, ITC Infotech, talked about his company’s exploits in the European markets.

“We have a deeper footprint in Europe. Last year the contract values in the US were coming down. In the last few years, European companies have aspired to be globally competitive,” said Sanjiv.

One of the challenges in the European region is the diverse cultural differences that need to be acknowledged.

“Each country in Europe has a definite manner in which work gets done and one needs to recognize that and work accordingly. Also, not all countries in Europe have an English-speaking population and Indian companies are well equipped to deal with such situations,” he said.

Even as many experts analyze the economic scenario in the US, there are many who believe that the economic recession is just around the corner.

Simon Ormston, head (Outsourcing Marketing), BT Global Services gave a different take.

“Forrester’s view of the US economy shows that it will be decidedly weaker in 2008- but there will not be a recession. I think that remains to be seen, and I wish I had a crystal ball to see that!”

Ormston sounded caution for those who are ready to write off the American market when he mentioned, “For the Indian companies, the US will continue to be the most important market at least till 2012. Europe is surely providing newer opportunities but is heterogeneous with countries displaying very different levels of maturity and outlook towards outsourcing. UK would see a slowdown with its ties with the US.”

He agreed that Indian companies have a significant cost advantage in the foreseeable future but stated that they would need to demonstrate their ability to deliver and find ways to recruit resources, which understand the European markets very well.

While agreeing with Ormston Sudhakar Ram, chairman and managing director of Mastek Limited, stated, “Attempts to shift focus from America to Europe point to the fact that the industry’s challenges are geography-led and not business model-led.”

He enthused that the US accounted for 67 per cent of India’s IT/ITeS export, but the country's share of addressable market is very low.

With the rupee appreciation giving sleepless nights to the IT players, Europe certainly assumes a better destination, but to completely shun the US markets would be at your own risk. Europe for sure looks pleasing but the US still holds the key.