New Delhi: Economic turmoil in Europe may lead to more outsourcing projects for Indian information technology (IT) firms, particularly from continental Europe, as firms there seek to cut costs, say executives and sector analysts.
The country’s largest IT firm, Tata Consultancy Services Ltd (TCS), earns around 10% of its revenue from continental Europe. It is looking at raising the share. “Our business model is part of the solution for the recovery. That is likely, but if you are asking for proof points, I don’t have any at this moment,” said N. Chandrasekaran, chief executive and managing director.
But he added that the weakening of the euro against the dollar will hurt TCS revenue.
Euro is poised for a 7.6% drop against the dollar in May, its sixth straight monthly decline, amid concerns over the debt crisis in Europe.
Rising share: TCS chief executive and MD N. Chandrasekaran. Hemant Mishra/Mint
Though Europe is a worry in the short term, “it could actually prove to be an opportunity as companies begin to realize the advantage of outsourcing, which could lead to more work for firms such as ours,” said R. Chandrasekaran, president and managing director (global delivery), at US-based Cognizant Technology Solutions Corp., which has a substantial presence in India.
Europe is already the second largest outsourcing market for India’s export-driven IT industry, but the bulk of European revenue accrues from the UK.
Analysts said this imbalance could be corrected in the coming months as continental Europe, under pressure to cut costs, drops its traditional conservative outlook towards outsourcing.
“The relief package of $1 trillion which has gone into the system along with the expected mergers and acquisitions could mean more work for Indian IT vendors in the future,” said Kumar Parakala, global head of outsourcing, KPMG.
Parakala was referring to the International Monetary Fund and the European Union’s combined economic rescue package for the continent.
The total contract value of outsourcing deals in the Europe, Middle East and Africa (EMEA) region in the first three months of 2010 was €7.2 billion (41,184 crore), up 7% from the year-ago period, according to a recent report by consultancy firm TPI. Much of the growth took place in continental Europe. The UK, Germany and France are the largest European IT markets, accounting for nearly 55% of the total European market share, according to market estimates.
Hans van Herwaarden, the Amsterdam-based global chief executive of consultancy firm Quint Wellington Redwood, said many European firms are looking for mid-tier IT firms to outsource their services.
“The issue is that only the top Indian IT firms have a presence in the continent and some clients are not willing to give them work, intimidated by their sheer size,” he said.
Sunil Mehta, country manager, Quint India, said though some mid-tier Indian IT firms, such as MindTree Ltd, are looking at expanding in Europe, “companies will have to tap the opportunity in Europe more aggressively”.
The crisis in Europe and the weakening of the euro could open up opportunities for Indian IT firms to acquire firms in the continent and add to their capabilities, as reported by Mint on 25 May.
K. Raghu in Bangalore contributed to this story.