Resurgence of the Europe growth saga – Part 2

Part 1 of this blog series dwelt upon how Europe has evolved as a major market for Indian IT service vendors. There is an immense opportunity for growth with more than 75 per cent of IT services in Europe being done in-house.

Part 2 of this blog series enumerates the key drivers and some of the positive business decisions taken by the industry to increase its foothold in the hitherto elusive European market.

M&A-EuropeMergers & Acquisitions:  Big Indian IT companies, heavily reliant on the U.S. market and eager to diversify, intensified efforts to crack continental Europe in the past three years through acquisitions, setting up operations on the ground and hiring locally. To gain access to European countries where English is less common, companies have acquired local service providers. For eg. in addition to TCS’ purchase of Alti a French company last year which will support the company’s business in France, Switzerland and Belgium, Infosys in 2012 bought Swiss consulting firm Lodestone, and Cognizant, US headquartered company with over three-quarters of its workforce in India, acquired six small IT companies in Germany.

Europe-DCsNew Delivery Centers: Many of the large enterprises and public sector organisations in Europe prefer certain services to be delivered locally. In order to meet this requirement many Indian firms have set up delivery centers in the client locations to make use of the local talent and other services. (Check infographic)

Deals Contracts: For years, Indian companies have struggled to win large contracts from clients in the continental European market, where local companies and large MNCs have always held a larger share. This trend is slowly reversing over the last few years as the top Indian vendors have made significant strides and gained market share in these markets. According to IDC, deals worth USD 116 billion wouldDeal-Europe come up for renewal between July and June in Europe. With legacy systems going for rebid, restructuring activity is likely to grow further in Europe. Indian companies need to invest more to tackle language barriers and stricter labour laws in the region to gain a larger share in this pie.

For European companies, many of them battered by a prolonged economic slowdown, Indian IT firms offer cost advantages to using local vendors or doing the work in-house. In the recent years Indian vendors are also increasingly doing complex and high-end work making use of the latest technologies. Skills shortage in continental Europe is also one of the reasons driving the growth for offshore acceptance in these countries. Increased cost pressure, Indian vendors’ comfort in rebadging local employees and more lenient labour laws relating to temporary workers act as catalyst in driving growth from Europe.

Despite this encouraging scenario there still exists some hurdles and barriers which can hamper the European growth story. Language barriers, tight labour rules and Data Security and Privacy norms continue to be a dampener. India is not yet compliant with a European data privacy directive, which limits some of the work that can be moved to the country. Moreover the organic growth route which the companies have been taking to get a foothold in the region also comes with difficulties as Europe unlike US isn’t a single homogenous region, every country/region has different cultural sensitivities and languages which makes it even more difficult to use a ‘one-size-fits-all’ strategy.

However, as the saying goes “when the going gets tough, the tough get going”, India with its ingenious global delivery model, formidable value proposition and impressive business acumen should be able to surmount these challenges.

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