No easy going for IT companies in Europe

For India’s top tech firms seeking to grow revenues from Europe in order to offset lower spend by American clients, it’s going to be Key facts on India's IT industry

a long, arduous journey, said research firm Forrester on Wednesday.

The US, which accounts for over half of India’s $60-billion software outsourcing industry, has traditionally been the top market for Tata Consultancy Services (TCS), Infosys and Wipro, among many others. However, over the past few years, Indian tech firms have been trying to mitigate their high American exposure by focusing on Europe’s $14-billion market for software and back-office services.

“You cannot replicate the US model in other markets. Unlike the US, European customers are not thinking primarily about costs. If Indian companies follow the same model for another 2-3 years, they will struggle,” said Sudin Apte, principal analyst of Forrester Research. Mr Apte, who surveyed around 400 European customers in order to understand their outsourcing priorities, said India’s tech firms will need to go beyond just hiring local workforce for sales and delivery efforts, if they really want to become successful in Europe.

“Offshoring in North America is a standard business decision, however in continental Europe, it’s a religious decision,” said Mr Apte, quoting one of the customers surveyed for his study.

Indeed, for almost a decade, the UK has been the top market for Indian companies with customers such as British Petroleum (BP) and British Telecom (BT) outsourcing projects to TCS, Infosys and Wipro. However, the UK, which outsources around $9 billion worth of projects to India every year, does not reflect the entire Europe.

“The United Kingdom is very similar to the US, unlike continental Europe where language and cultural barriers exist,” added Mr Apte.

Many European customers are more comfortable working with delivery teams in neighbouring countries, instead of signing large offshore contracts. “For example, Romania’s historical ties with Bulgaria, Italy, Greece, and Germany makes it easy to connect with clients in these locations,” Mr Apte added.

However, mature outsourcers such as BT, BP and ABN Amro have had no such bottlenecks, while deciding to work with large Indian offshore services providers such as TCS, Infosys and Wipro.

“For globalised European customers, outsourcing is not a new phenomenon, but for many companies, especially those who are pan-European only, outsourcing and offshoring is not such as hot thing,” he added.

Compared with Forrester’s survey in 2008, the current research shows a drop of more than 20% in the number of companies that were thinking about starting an offshore initiative for the first time. “This means that in the next 12 months, we will see few first-time offshore users sending their work to locations like India,” said Mr Apte.

The Forrester research also found that multinational firms such as IBM and Accenture are better positioned that the Indian IT vendors when it comes to serving customers in continental Europe.

“Accenture has more staff serving continental Europe customers than anybody else - it’s not about pure offshoring anymore,” he said. For instance, Accenture serves more than 300 customers from Germany with a few hundred staffs making use of the managed services model, which allows the company to serve more with less.

Agencies

Will MindTree foray into China shortly?

Mid-sized software services firm MindTree will be making foray into China, having bagged a significant outsourcing contract from China’s biggest telecommunications equipment maker Huawei Technologies.

For the Bangalore-headquartered company, China marks new geography entry, besides already having presence in US and Europe. Confirming the development , Parthasarathy N S, CEO, testing & IMTS, MindTree, said, “We will be doing independent testing in the telecom space. This project has different phases and has potential to become large. The contract also allows us to move up the value chain as China has emerged a big growth market”.

However, he declined to name the customer as he is not allowed to do so. The contract deals with R&D and involves managing and supporting independent testing for Huawei’s different product line, where employees of MindTree will do the work at customer location, a person privy to the development said.

“Four companies were bidding for the contract, including an Indian firm and it was given to MindTree after complete evaluation of capabilities ”, the person said on conditions of anonymity. The company, which counts steel-maker Arcelor Mittal, Swedish truckmaker Volvo and insurer AIG among its top customers, will now be opening a subsidiary in China. Mr Parthasarathy said that they have sent techies from its India centres to China and will also look at option of hiring local talent there.

“China is an important market and we are evaluating to set up a development centre, but nothing will be decided till 12-18 months,” said Parthasarathy.

Economic Times

Infosys set to acquire consulting firm for $200 million

Infosys Technologies Ltd, India’s second-largest provider of computer-services technology, may buy consulting businesses for as much a s $200 million to attract more clients, the finance chief said.

Infosys also may buy similar-sized businesses that process transactions, or information technology companies, Chief Financial Officer V Balakrishnan, 44, said in an interview in New York. The company isn’t in serious discussions with anybody, he said, declining to name potential targets.

“Acquisitions are a lot like love,” he said. “We’re not in love. We haven’t even started dating anybody.”

Infosys, which is projecting it’s first-ever decline in sales this fiscal year, is turning to new services to increase revenue in the worst recession since the 1930s. Building the consulting division will help the Bangalore-based company compete in the US against International Business Machines Corp, the world’s largest computer-services provider.

Infosys will look primarily in the US and Europe for purchases, said Balakrishnan. The company gets almost 90 per cent of its sales from North America and Europe. It aims to more than double domestic revenue to 5 per cent of total sales, he said.

‘Niche’ markets

The company’s American depositary receipts advanced 0.8 per cent to $47.21 in Nasdaq Stock Market trading yesterday. The shares have gained 92 per cent this year. Each ADR is equivalent to one ordinary share.

The company plans to invest in “niche” markets, such as health care, Balakrishnan said. Infosys isn’t interested in so- called captive units, processing divisions within a specific company, he said.

Infosys is in talks with five to six clients to buy their technology units, B G Srinivas, a senior vice president who heads the software provider’s operations in Europe, said in June. The company is in discussions with two customers in the US and three to four in Europe, he said at the time.

Sales will range between $4.45 billion and $4.52 billion in the year ending March 31, Infosys said on July 10, marginally increasing the lower end of its annual forecast for at least a 3.1 per cent revenue decline made in April. Infosys won’t be able to predict fiscal 2011 demand until clients complete their budgets in January, Balakrishnan said.

Infosys and top-ranked Tata Consultancy Services Ltd won orders from BP Plc, Europe’s second largest oil company, the Indian software providers said last month, signaling clients may be resuming spending on computer services. Infosys declined to give financial details while Tata Consultancy said it may receive as much as $100 million a year from the BP contract.

Agencies