Despite economic uncertainty, Europe offers scope for Indian IT firms

Top Indian IT services companies improve market share as European clients offshore more work to cut costs

Indian information technology (IT) services companies are slowly gaining market share in Europe, with European buyers opening up to offshoring services.

According to a recent Gartner report, the top five Indian IT services companies, including Cognizant, have increased their market share in Western Europe from 2.3 per cent in 2010 to 2.8 in 2011.

Within Europe, while Tata Consultancy Services (TCS) continued to hold on to its position of the leading IT services provider, Wipro managed to hold on to its position despite competition from Cognizant and Infosys Technologies.

For 2011-12, Wipro’s IT services revenue from Europe stood at $1.6 billion, accounted for 28.3 per cent of the company’s IT revenue of $5.9 billion. It was ahead of India’s second largest IT services firm Infosys that derived $1.5 million in revenue from Europe.

Research company IDC said in a recent report, “One of the reasons for Wipro to do better in Europe was its differentiated capabilities in infrastructure management, an area in which it stands out strongly from most of its peers.”

The Nasdaq-listed Cognizant, which has overtaken Wipro in terms of revenue, is also lagging in Europe. Cognizant, which reported a revenue of $6.12 billion for the 2011 calendar year, saw its revenue from Europe declining in the last quarter of 2011. Europe contributed 19.9 per cent of Cognizant’s overall revenue at $1.17 billion.

“Indian IT services companies stared focusing on Europe quite recently. However, TCS, which had got the early mover advantage, is the number one Indian player in the region. It started focusing on Europe much before any other IT companies, including Wipro and Infosys,” said Pradeep Udhas, partner, KPMG India.

TCS managed to hold on its position by bagging its first ever £1.37-billion ($2.2 billion) UK deal from Friends Life in 2011. While Infosys also managed to bag two large deals in Europe, the fourth quarter dip in Europe pulled the company’s performance in the region.

Amneet Singh, country head -India, Everest Group, believes that even though Europe is struggling with its macro conditions, companies would look at reducing their costs and "one of the ways that they can achieve this is through offshoring to regions that would give them the option of labour arbitrage."

Indian IT services companies are looking to increase their wallet share in Europe by setting up regional offices in various Europe countries and appointing country heads for various countries among others.

“Our strategies for Europe are paying well. We are seeing good traction in the region and our localised focus for Europe is bringing benefits for us,” said Infosys chief executive S D Shibulal.

In the recent past, HCL Technologies was also witnessing good traction in Europe, bagging significant wins from companies such as UPM, Statoil and AstraZeneca. Europe accounts for 25 per cent of HCL Tech’s overall revenue.

“Due to the current market conditions in Europe, companies are looking to bringing down cost of operation, which provides a lot of opportunity for the Indian players,” said Singh of Everest Group. He, however, said that the Indian players would have to face stiff competition from global companies like IBM, Accenture, Capgemini and Logica, which have established a strong base in Europe.

The IT outsourcing market in Europe is estimated to be about $260 billion, according to various reports.