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Software companies are witnessing an increase in revenue from Europe after a two-year lull.
While acquisitions in the continent have helped some Indian companies get more clients there, businesses in Western Europe are now using the full potential of offshoring to cut costs.
Tata Consultancy Services’ (TCS) revenue share from the continent was unchanged during the June quarter but for all other major players, Europe is starting to bring in more business than before.
Europe is down overall in the very large deal segment, but for smaller deals and spending, it continues to be competitive.
Within Europe, activity in the Nordic region has held up in both small and large deals, said Sid Pai, Partner and President of ISG Asia Pacific, a research firm. “Western Europe has now fully realised the potential for offshoring and has been going at it full swing, especially since their current economies have put them under cost pressure. Also, Indian heritage service providers have been investing heavily there, not just in sales presence but also through acquisitions,” Pai said. In the last few months, TCS has made two acquisitions in France, HCL acquired Axon and Infosys took over a Swiss/German IT firm – all helping them to grow in Europe.
Rajeev Mehta, Group Chief Executive, Industries and Markets, Cognizant Technology Solutions, said , as the macro environment continues to be challenging in Europe, clients have become keener to move more work to a global delivery model.
In such an arrangement, the IT solutions company can provide its client with 24/7 solutions by using offices spread across the world.
Economic climate
Mehta adds that the economic climate is also the reason for a structural shift from discretionary projects earlier to more critical and larger annuity-based outsourcing deals from Europe now.
A discretionary project relates to spending that can be delayed, such as system improvements or new system additions.
Mehta adds that the overall European IT services market is roughly the same size as the North American market but the headway made by the global delivery model in Europe is much less than that in North America. As such, Europe remains an attractive long-term market and merits continued focus and investment.
“Deals are happening, decisions are getting made, especially in the US. Large scale deals in Europe probably take a little longer but are happening,” said N. Chandrasekaran, CEO, TCS, in a conference call with analysts while discussing the company’s June quarter financial results.
Steve Cardell, President, Enterprise Services and Diversified Industries at HCL Technologies, told analysts that Europe continues to be good, not because the market is recovering but because the company found itself a niche there because cost pressures are weighing clients down.
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