Europe offers better IteS, BPO opportunities

With no end in sight to the declining dollar, Europe is rapidly emerging as a better venue for sourcing BPO business to India. By Mohini Bhatnagar.

The Indian business processing industry (BPO) has played the labour costs arbitrage to become one of the country's hottest service sectors. But what happens when the arbitrage goes against India? That is the question facing the industry as it faces increasing competition from the Philippines and China, particularly the former. It is time Indian companies began to look more at European countries that are increasingly looking to outsource business to India, feels Maninder Singh, manager Forums, SPG Media.

SPG Media is a UK-based publishing company listed on the London Stock Exchange. It has a major presence on the internet, with a number of industry reference portals on diverse sectors like packaging, hospital management, etc. It actively organises industry forums, bringing buyers and sellers together in the ITeS / BPO and financial sectors.

This June, the company is organising a three-day 'European Outsourcing Forum India 2005' in Dubai, to bring Indian ITeS / BPO companies in touch with European companies looking to outsource work to low-cost locations. The company says its Euro-centric focus is based on recent studies. A recent report by International Data Corporation (IDC), for example, says the US economy is still reviving and Indian companies have begun looking towards Europe to guide them to growth in the years to come.

Till now, India's rise as software services player was largely dependent on US business, with the dollar constituting more than 65 per cent of Indian software exports. Big markets like Europe have not really been tapped as compared to their potential. Western Europe, had an IT services spend of $109.6 billion for 2002-03, translating to just a 21.3 per cent market share of software services exports. Compare this to North America, with an IT services spend of $171.1 billion, which accounts for 67.7 per cent of Indian software services exports.

The IDC report says Indian software companies have a lot to gain in the European market if they play their cards right. The European market has also gained significance because the US dollar is steadily going downhill, eroding dollar earnings for BPO outfits, whereas the Euro continues to be steady or appreciates, boosting their rupee revenues.

Europe accounts for around 30 per cent of the global IT services market and IT services spending in Western Europe is expected to grow at a CAGR of 11 per cent in the medium term. Financial services and telecom are the main sectors that represent huge opportunities for Indian companies in Europe.

Nasscom research
Nasscom vice president of research Sunil Mehta has found that the financial services sector, including securities, banking and insurance services, is the largest consumer of IT services. In Europe, stock exchanges are required to implement the International Securities Identification Number (ISIN) for all securities trading. This is likely to offer a significant opportunity to Indian software companies with expertise in the financial services industry.

Within Europe, the UK is the largest IT market, estimated to be close to $39 billion and growing at a CAGR of 7.4 per cent. Hence, Indian software companies look at the UK as a springboard into the European market. In the UK, financial services, the public sector, utility services and manufacturing are some of the traditional big spenders on IT.

But Europe is not just about the UK. Says Mehta, "There are large non-English speaking markets in Western Europe (Germany, France and Italy) which remain under-penetrated by Indian IT companies. These three alone have the potential to offer the Indian industry over $2 to $3 billion in export revenues by the year 2008. Germany, for instance, has the potential to emerge as a high-growth geography for Indian companies in the next two or three years, followed by France and Italy. The IT services market in Germany is expected to be $40 billion by 2005. Likewise, in France, the IT services market is expected to be close to $30 billion by 2005."

A number of Indian companies have successfully entered European markets. One of the first was TCS, which set up operations in the UK in 1975. Infosys has also seen its revenues from Europe growing from 9.4 per cent (1999) to 19.5 per cent (2002). Wipro Technologies has seen a similar rise, from 29 per cent in 2001 to 36 per cent in 2002.

Mid-sized companies like Mastek too have benefited in a huge way from a European focus. Mastek CMD Ashank Desai says, "Europe is a key market for us and contributes more than 60 per cent to our revenues. Even in the current economic scenario, our revenues from the European market have been growing at 60 per cent.

According to Patni Computer Systems (UK) managing director Sukumar Namjoshi, "Europe offers promising opportunities in the areas of internet, e-commerce, mobile and wireless communications. Verticals like banking and finance, utilities, retail and manufacturing industries also offer opportunities.