Top European banks are set to increase offshoring to Indian IT vendors such as Tata Consultancy Services and Infosys, as they seek to tide over the uncertain financial climate in the region.
According to a joint study by Deutsche Bank and Value Leadership Group, interestingly, these banks — half of whose cost-savings come from offshoring — rate Indian vendors on a par with multinational vendors, such as IBM and Accenture, on delivery. (The conclusions of the study were arrived at on the basis of interactions with service-vendor relationship managers of four of the top 10 banks in Europe.)
“Moreover, most banks we polled complain that despite the service agreements, during the last financial crisis MNC firms like Accenture and IBM saw resource issues offshore (read centres in India, China, the Philippines, etc) and used a greater proportion of their on-site headcount while executing application-development projects. This increased the overall cost of execution,” Deutsche Bank analyst Mr Aniruddha Bhosale said in the report.
On the other hand, Indian vendors were more willing to relocate work to offshore locations as offshoring is fundamental to their business models. Moreover, most service agreements with Indian vendors stipulate that up to 60 per cent of the work be delivered offshore.
The report said a European bank, which spends between 20 and 25 per cent of its IT budgets offshore, now plans to increase the spend to over 30 per cent. “The ratio of spending between captives and Indian vendors is 70:30. This ratio over the next three-four years is likely to move to 50:50,” the report quoted banks as indicating.
Banking clients in Europe rate Infosys high for its quality of service, while TCS is known for its ‘range of offerings' and ‘willingness to partner' on difficult engagements. This approach helped TCS attain preferred vendor status with three of top four European banks and top vendor status with two, it said.
“They say Infosys is tougher to negotiate with but sticks to deadlines; its pricing across services continues to be at least 2-5 per cent higher than the rest of the offshore vendors,” said Mr Bhosale.
While TCS works with Deutsche Bank, RBS and BNP Paribas among others in Europe, Infosys has Credit Suisse, UBS and ABN Amro in its kitty.
Mr Ameet Nivsarkar, Vice-President of IT industry body National Association of Software and Services Companies (Nasscom), believes that the current crisis in Europe has prompted several old financial institutions to re-evaluate the core and non-core aspects of their business, a trend that augurs well for Indian IT services firms.
“The Indian value proposition of low cost, yet high quality IT services continues to be as strong as ever…and that is why we have still maintained that this industry will grow by 16-18 per cent in fiscal 2012 despite the economic uncertainty in the US and European markets,” said Mr Nivsarkar.