Chennai: Indian offshore service providers
are posing a challenge to continental European competitors as enterprises within
Europe increasingly seek to take advantage of global sourcing, states Gartner,
Inc. Unlike
enterprises in the US or the UK, continental European countries have been historically
more reluctant to engage with offshore providers to support their business needs
because of political sensitivity, labour laws, language requirements and cultural
compatibility. Globalisation, however, is spawning new competition that European
companies cannot ignore. In
the last few months of 2006, leading offshore providers in India released quarterly
earnings announcements that signalled strong earnings in Europe. Despite these
providers not specifically disclosing major client wins in Europe, these earnings
announcements show how Indian service providers have achieved traction in the
traditionally difficult continental European market. They also demonstrate how,
especially outside the UK few European organisations are comfortable with the
idea of publicly announcing the use of offshore outsourcing. This is because European
business leaders still worry about offshoring''s effect on their company''s workforce
and image. "Tier
1 Indian offshore providers, without exception, have recorded outstanding growth
rates since the first quarter of 2006. The three largest (TCS, Infosys and Wipro)
have recorded year-on-year growth of more than 40 per cent, while Cognizant Technology
Solutions (CTS) has enjoyed a 60 per cent growth rate. Although the US is still
the largest market for these companies, their European divisions have shown the
strongest growth, thanks to strong acceptance in the UK and an increasing number
of customers in continental Europe," said Claudio Da Rold, vice president,
Gartner''s IT sourcing group. "These
Indian offshore providers are recruiting staff in the European markets they sell
into; not just sales staff, but consultants, project managers, engagement managers
and, in some cases, personnel to staff their new nearshore delivery centers,"
added Ian Marriott, vice president, research for Gartner''s IT sourcing group.
"However, Indian service providers must tread cautiously and first deal with
further challenges before they can compete on an equal footing with the major
traditional providers." According
to Gartner, Indian providers face three big challenges if they hope to be seen
as equals with traditional European providers: European
providers enjoy entrenched mind share Traditional European local or multinational
providers enjoy greater mind share among European buyers. Their long-term presence
and investments have demonstrated a commitment to each of the European countries
and have underlined a European strategy. Until recently, with the exception of
the UK, many European companies believed the Indian providers had an opportunistic
approach to Europe. By increasing local hires, the Indian companies will take
the first step on a long, slow path toward gaining European buyers'' trust and
confidence. A growing number of providers are starting to demonstrate capabilities
that will help organizations look beyond cost savings to achieve other benefits,
including access to scarce skills, resource agility, productivity gains, process
improvements or innovation. European
companies are reluctant to publicly acknowledge offshoring Continental
European buyers'' reluctance to acknowledge their use of offshore services does
not help providers that want to leverage their success to win more deals, particularly
when they are trying to gain traction in certain industries or countries. This
silence about the use of offshore services also disguises the extent to which
companies use offshore resources. Some
continental European companies have signed deals with traditional service providers
for offshore services, so that it is not obvious to the market that they are moving
work overseas. Many traditional service providers have decreased their European
operations in favor of increased offshore delivery capability. Some offshore providers,
therefore, are justified in claiming that they are the local employers of the
future as they scale up their local network of skills. Large
labour pools can become unwieldy Indian and traditional providers are building
scale offshore, in India and elsewhere. For the Indian providers to continue their
strong growth, they must move away from labor-intensive methods of responding
to strong demand. Effective operations in the future must also be able to offer
process automation, including repeatable solutions and utility delivery models,
or these providers risk building up an unsustainable and unwieldy resource pool. Gartner
warns companies in Continental Europe that just because outsourcing deals are
not being made public, it does not mean that they are not happening. Mature users
are already enjoying value beyond cost savings and the more conservative companies
should not lose out in the outsourcing race. Gartner
advises Indian offshore service providers to establish local (onshore and/or nearshore)
delivery capabilities, not just sales offices. This is because buyers will seek
consulting and delivery capabilities that understand their local markets and business
environments, in addition to being able to address language and cultural issues.
Indian offshore service providers must plan early to adapt their delivery model,
taking into account nuances like automation of processes, more repeatable services
and solutions, utility delivery approaches and true innovation. For
Continental European service providers, Gartner recommends a revamp of their service
and delivery strategy against major trends, such as global delivery and industrialisation
of services. Traditional Continental
European service providers should evaluate the market, their value proposition
and options, including partnerships, mergers and acquisitions, or dismissal; then
act with a sense of urgency.
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