Europe was expected to be Indian IT?s Achilles? heel for the October-December period, but it turned out to be an enormous surprise packet. All Indian software firms (at least those who have announced their results till now) have punched above their weight in the continent, much against expectations.
Let?s take HCL, for instance. Europe, as a geography, grew 21.6% year-on-year, with continental Europe on its own growing by over 36%. This was at a time when the eurozone crisis had cast a spell of gloom over this particular geography. HCL top management commented that companies in the financial services space in Europe have initiated their vendor consolidation processes and are opening up to appointing new vendors. HCL gained from this development and bagged four out of its 18 new deals in Europe, something that analysts would have never predicted at the beginning of the quarter.
The same was the case with TCS, India?s largest software firm. Or even better, we should say. Its European business grew by 18% sequentially and by a staggering 54% on a year-on-year basis. Infosys, on the other hand, grew its revenues in the continent by almost 17%, compared to just 3% during the corresponding period last fiscal. These are great numbers,
especially considering the slowdown in the economy.
According to brokerage firm Kotak Securities, growth in continental Europe belies concerns relating to the geography. Clients in this geography are increasing off-shoring as they focus on reducing costs and improving efficiencies, Kotak wrote in its recent note. And that?s the moot point about information technology. Tough times force clients to spend big on IT, thus saving costs elsewhere.
Some firms won and won big in Europe. Infosys signed five large deals globally with one business transformational deal during the quarter. Two deals are worth $500mn-plus, with one each in business operation optimisation and infrastructure management. Of these, two large deals are from new logos in Europe. According to Prabhudas Lilladher, Infosys?s investments in France and Germany have helped them capture new logos and first-time outsourcers in Europe.
Over the years, Indian IT firms have been trying to balance the equation with regard to their geographical revenue mix. The US always contributed the lion?s share of the revenues, and continues to do so. But then this model was always fraught with risk. What if the US has a terrible five years or so? Where will Indian IT go then? It always looked prudent to balance it out. Infosys, for instance, had said that it wanted a 40:40:20 mix, with the US and Europe on an even keel. It?s tough to get this organised, but it?s of prime importance. Agreed that Europe is a tougher geography to penetrate. But the challenge lies in doing the tough things well. The Indian IT industry has begun to realise, over the last 3-4 years, that it would be foolish to just depend on one geography or for that matter even one or two key verticals. That?s what TCS has done in Q3, by growing across verticals and geographies. Doing well in the US and the BFSI vertical are not doing the trick any more. The way forward is to grow every pie.
But this not something that all firms can do. Maybe a TCS, Infosys or Wipro can do it, along with HCL. Mid-tier companies will find it enormously hard to spread their revenues across. The smaller firms typically depend on one vertical or one geography to make their ends meet. They too need to come up with a solution to break the rut, otherwise the $76bn Indian IT industry will continue to be a five horse race. Investments in Europe are important. Gone are the days when people assumed that the continent was tough to break into, despite sustained efforts. These are challenging times. And challenging times offer companies some rare opportunities. Q3 has proved it. Europe is slowing, and clients want better operational efficiency. India, with its army of code writers and cost advantages, can help them achieve it. The time to strike Europe is now, and the software leaders of India have picked up the message.
dj.hector@expressindia.com