While developed countries like the US and Europe continue to be the core markets for both Indian and global IT outsourcing companies, Indian IT firms are now increasingly focusing on other regions to reduce their dependence on North America and Europe while also targeting untapped territories like Latin America (LATAM), according to analysts.
Over two-thirds of the revenue of major Indian IT companies like TCS, HCLTech, and Infosys comes from North America and Europe, observed Biswajit Maity, Sr principal analyst at Gartner. However, companies are also exploring territories like LATAM and Africa. Several factors are driving this shift.
Nearshore services
“From our client interactions over the past year, it’s clear that interest in nearshoring has grown significantly. IT companies are exploring nearshore locations to support their clients better. The closer geographical proximity facilitates improved communication, easier collaboration, and better time zone alignment, leading to reduced delays and enhanced business engagement.”
Latin America
He added that LATAM has a growing pool of skilled IT professionals. Countries like Argentina, Brazil, Chile, Colombia, and Mexico have made significant investments in education and technology, resulting in a workforce increasingly proficient in various IT domains. Wages in these regions are also competitive.
“While hiring top tech talent in North America and Europe can be challenging and expensive, nearshoring to LATAM or Africa broadens the talent pool and offers cost savings. These locations also offer strong capabilities in terms of educational alignment, English language proficiency, global connectivity, infrastructure, local government support, security, and political and economic stability,” Maity noted.
IT outsourcing
Pritesh Thakkar, Research Analyst, PL Capital- Prabhudas Lilladher, also echoed that Indian IT companies have started exploring other developed regions like Japan and Australia, along with areas like the Nordics and Eastern Europe for IT service outsourcing purposes, though not necessarily for talent acquisition.
“Indian IT companies are more inclined to hire talent in developing countries like India, the Philippines, Vietnam, Sri Lanka, and Indonesia to benefit from labor arbitrage opportunities. Developed countries like the US and those in Europe will continue to be the core markets for both Indian and global IT outsourcing companies.” These countries will offer strong potential for outsourcing, often with higher realisations. Developed nations are also home to Fortune 500 enterprises, which have a significant portion of IT spending available for outsourcing, he said.
Pareekh Jain, CEO at Pareekh Consulting and EIIRTrend, said, “A lot of companies are focusing on India as a market unlike earlier. For example, TCS got a BSNL deal earlier this year and LTTS got a Maharashtra cybersecurity $100 million. The Indian market is opening up and so is the Middle East and Africa. In the Asia Pacific region, companies are looking at markets in Japan, Taiwan, and Korea; they are trying to follow the IBMs and Accentures of the World.”
North America has a higher share of 55-60% and Europe, 20-25%. “Companies will strengthen their presence in North America and Europe. But the moment you hit a large scale, your ability to get more business from Europe and the US will be limited, and you will have to look at other geographies. TCS has started facing this issue because they are close to $30 billion in revenue and want to hit $50 billion by 2030,” said Jain.
He added that TCS is aggressively looking at Asia, India, and Latin America for incremental growth. While companies have some leeway to still grow in Europe and North America and go slow, large companies at TCS’ level need to grow not just in the US and Europe because around a third of their markets are in the rest of the world.
At present, India contributes around 5–7 per cent to the overall revenues of the top six Indian IT companies. According to Thakkar, while there is no set timeline, India might become a key market where technology outsourcing could be substantial, which could be addressed by both Indian and global IT outsourcing providers.
Business expansion
Jain stated that companies opening delivery centres in Mexico, Vietnam, and Latin America are also leading indicators of expansion. Companies may also examine these geographies for acquisitions, which currently is not very significant. Organic growth for these companies is through opening delivery centres and hiring more people in these geographies, while inorganic growth could be through acquisitions.
“In a nutshell, these IT companies aim to expand their presence and acquire new customers in LATAM and Africa and focus on developing delivery centers to provide services at a nearshore location,” Maity resonated, adding this shift will only continue to grow.