Eurozone crisis an opportunity for Indian IT: Expert

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Ranvir Nayar | 14 Feb, 2012
India's Information Technology sector is well placed to take advantage of the current Eurozone crisis as an increasing number of companies will look at "offshoring" as a way to cut their costs, says an expert with a leading consultancy.

For that, Indian companies like Infosys, TCS, Wipro, HCL and Mahindra Satyam, would have to come out of the current "low-hanging fruit" syndrome and also look closely at mergers and acquisitions, said Christophe Chalons, chief analyst with Pierre Audoin Consultants.

"In 2011, India contributed 72 percent to the worldwide market for offshore IT services. But there is a problem area for the Indian IT. In 2011, the US generated over 60 percent of the revenue for these companies and the UK, not far from 15 percent," he said.

"In comparison, continental Europe will still generate growth rates above 15 percent -- Germany and France in particular, followed by the Netherlands, Switzerland, Belgium and the Nordic countries," Chalons told IANS.

A speaker at the Nasscom International Leadership Forum that opens in Mumbai Tuesday, he said the share of direct offshoring addressed by players like TCS, Infosys or Wipro is around 50 percent in the USA and the UK.

In contrast, traditional IT Services suppliers like IBM, HP, Accenture, Capgemini, Atos, Logica and T-Systems have dominated the markets in France and Germany, where the direct offshore market only represents 25 of the total spending.

"This makes continental Europe both very attractive and very challenging for Indian IT."

Asked why Indian IT lags behind in Europe, Chalons did not mince words. "First of all, this is not shocking: Indian IT first focused on 'low hanging fruits' like the UK and the US, build both on English-speaking and very mature IT services markets."

But it is shocking not to find any Indian company in the Top 30 IT services suppliers in Germany or France, he said, adding that Infosys and TCS may now enter the Top 30 league in Germany, while Mahindra Satyam, Wipro and Sonata may become more visible.

Chalon said mergers and acquisitions (M&A) will be another way forward.

"M&A in Europe is both very attractive and very challenging for Indian IT," he said and emphasised on the need to substantially develop the market presence, with much stronger front-end, business development, sales, after-sales and delivery capabilities.

"But this is not the magic bullet for Indian IT companies as any substantial acquisition will kill their high margin, resulting in a dramatic fall in the stock valuation."

Chalon said everything was not grim in Europe and there were still a lot of IT projects running or to be started. In order to reduce costs, large organizations were also still in the process of consolidation, including infrastructure and applications.