The European market is generally conservative and they take a long time to decide on IT outsourcing. A strong local presence by Indian companies will give them better access, says Pradeep Mukherji, president, Avasant, an IT-BPO advisory firm.
Indian IT companies are taking the inorganic route, the latest example being acquisition by TCS of French company Alti for R530 crore. The acquisition gave TCS 1,200 employees with a presence in France, Belgium, Switzerland and Algeria. The other IT majors from India who have taken this route are Infosys, Wipro and HCL Technologies. In September last year, Infosys acquired Lodestone, a Switzerland-based management consultancy firm, for around $350 million. Infosys got close to 800 people through the acquisition, with a majority of people based in Europe. The buyout also gave Infosys access to over 200 clients across multiple sectors.
HCLs acquisition of UK-based Axon in 2008 gave it over 2,000 employees, while TCS, which bought BPO firm Pearl in UK in 2005, got around 950 people. Wipro has made several smaller acquisitions in Europe in the past like NewLogic, Saraware and Enabler. Similarly, Cognizant recently announced the acquisition of German firm C1 to increase its local presence.
Earlier, the overwhelming percentage of revenue for Indian IT companies in Europe came from the UK, but this has been steadily shifting over the past couple of years. This is reflected in the kind of presence they have built over the years in countries such as Italy, Spain, Nordics, Portugal, Belgium, etc.
Indian IT companies have also steadily opened development centres in the continent, primarily in eastern Europe in countries such as Czech Republic and Hungary, given the specialised IT skills available in this region.
Pradeep Udhas, partner and head, IT/ITeS, KPMG India, feels the inorganic route is the best way for Indian companies to penetrate Europe. There is an acceptability issue in Europe, which includes language, culture and other areas. Unlike IBM and Accenture, which have a global presence, Indian IT firms have very small set-ups.
Analysts point out that the recent acquisitions by Indian companies in Europe is more of a strategic fit than anything else. I dont see these acquisitions as major revenue boosters. Most leading players are sitting on a good cash pile and valuations of these companies are not expensive to strike a deal, notes Ankita Somani of Angel Broking.
Of the $76-billion IT-BPO exports from India, Europe contributes about 25%.