The European crisis is acting as a catalyst in driving offshoring from a region that has traditionally preferred onshore IT services. The strong Europe revenue numbers and client additions of Indian IT majors in recent times indicate that clients are viewing offshoring as a cost and efficiency lever.

In calendar year 2011, top-tier IT companies grew their Europe revenues between 23% and 40%. In the just completed Oct-Dec quarter, they posted strong sequential growth in Europe, with Infosys growing at 17%, TCS at 19% and HCL at 6.3%. Europe also saw a larger share of multi-million dollar deals being signed than the US.

Infosys added 14 new clients in Europe of which two were in the $500-million bracket and these were the largest deals the company won in the quarter. TCS won 10 large deals in the quarter that included four from Europe, three from the US, and two from Asia-Pacific. HCL won 18 large deals worth $1 billion, in which Europe led the list in terms of value.

Europe accounts for about 20-30% of Indian IT’s revenues, but a large portion of this comes from the UK. In Continental Europe, led by Germany ($44 billion in IT spends) and France ($37 billion), Indian IT has just a single-digit market share of IT spends. Other large but under-penetrated markets include Spain, Italy and the Nordic regions.

There are other factors too that explain Indian IT’s improved performance in Europe. Anil Chanana, CFO at HCL Technologies, said Indian IT has developed capabilities both organically and inorganically to take on large and complex projects. European IT spends are skewed towards higher-margin, projectbased services such as system integration.

There are also emerging opportunities in ‘run the business services’. Cognizant CFO Gordon Coburn said, “One of the things we are seeing as part of the current economic cycle, even in places like France and Germany, is that clients are beginning to openly address the issue of lowering their cost by moving application management services to the global delivery model.”

Indian vendors have also made huge investments in Europe in the past couple of years and have appointed country heads recruited locally. Sanjay Vishwanathan, CEO of Sonata Software, said the growing success of the global delivery model, as well as service lines like remote infrastructure and cloud, are helping the cause of offshorers. Indian IT companies also have nearshore centres in Europe in countries like Hungary, Poland, Portugal and Romania.

A Deutsche Bank study with 55 major IT decision makers in Europe found that TCS and Wipro were the most favoured vendors. TCS has a greater revenue exposure to Germany and France, which gives it an advantage in this market. Wipro offers the best nearshore delivery alternatives and has recently made some key strategic acquisitions.

Infosys is said to offer high-end services on par with European and American counterparts, but is not very flexible when negotiating commercial terms. HCL’s acquisition of Axon and strong infrastructure management capabilities has enabled it to win key deals in Europe but is still not viewed as a tier-1 player.

However Infosys CEO S D Shibulal cautions that despite adding 120 European clients in the last nine months, he would wait for a couple of quarters more to say confidently that the European uptick is a secular trend. There is also the danger of Europe falling into a deep recession which might lead to cuts in IT spends.

Source:http://timesofindia.indiatimes.com/tech/news/software-services/Good-news-fortress-Europe-opens-up-to-Indian-IT/articleshow/11599178.cms