Mumbai: India’s technology companies are looking to Europe and higher-end knowledge businesses to retain the country’s position as the world’s back-office hub in face of a sluggish US economy, spiralling costs and competition.

“We need to take more high-end work and look at areas outside the US to expand,” said Jerry Rao, chairman, Electronic Data Systems Corp Asia Pacific Advisory Board.

Countries like Philipines, Pakistan and Egypt are snapping at India’s heels, ready to offer services at competitive rates. More than 60% of India’s software revenues come from the US

Traditional back-office work, forecast at $11 billion this fiscal year, is expected to be a prime driver, with more complicated work coming India’s way, Peter Bendor-Samuel, CEO of Everest group, which offers consulting services, said.

As the industry reels under a 12.3 % rise in the rupee in 2007 and 15% average wage inflation, domestic market businesses are also not feasible because of thin margins, except in real estate and retail.

Audit and research firm KPMG has forecast high-end knowledge work, such as analytics, equity research, actuarial services to reach $17 billion by 2010, with the major share going to India.

“India has the potential to become a BPO imperialist,” said Bendor-Samuel.“At a time when India is pulling back incentives, other countries are offering more. Now, there’s something to worry about,” he added.

Indian firms will have to up their skill content, bring in more outcome-based pricing and would have to re-validate their value proposition, he said.

Firms offering engineering and design services are upbeat on their chances. One such company, Infotech Enterprises, for instance, has been able to get high prices from its customers during the current quarter.

“In engineering services we do not see a slow-down and our clients have been very supportive of our position,” said B.V.R. Mohan Reddy, chairman and managing director of Infotech, at an industry summit.

“I do see a shift from traditional IT services to engineering product design - its really taking advantage of the high number of engineers in India and China,” said Robert Parker, analyst with Manufacturing Insights, part of research firm IDC.

US-based Sapient Corp and France’s Atos Origin recently announced plans to increase their India head count.