Europeans Less Ready to Offshore, Says Forrester

Unlike companies in the U.S. and the U.K., firms in Continental Europe are still hesitant to outsource work offshore to countries like India, according to research by Forrester. "We are seeing only a few large offshore deals from Continental Europe, because companies there are still testing the waters, and the ramp up is very slow," Sudin Apte, an analyst at Forrester, said on Thursday.

Following fears that the U.S. may go into a recession, Indian outsourcers have started focusing on the Continental European market to reduce their risks. Some Indian outsourcers like Infosys Technologies have set up facilities in Europe to offer services in proximity to its European customers.

The U.S. currently accounts for over 60 percent of the revenue of Indian outsourcers. The business from Europe is as yet not large enough to, say, offset a drop in demand for offshore outsourcing from the U.S. financial services sector, Apte said. Continental Europe is a relative newcomer to outsourcing, and currently the percentage of IT work outsourced is not at U.S. levels, Apte said.

Continental European companies still insist on the service provider having a large local presence, even when the work, such as software application development, does not require a high level of local language knowledge.

But in most European countries, except Germany, Indian and European service providers struggle to get their Indian staff onshore to the client site for longer engagements, because of government regulations regarding visas, Forrester said.

While U.S. and U.K. companies are willing to change their systems and processes to facilitate offshore outsourcing, a company in France, for example, would want its vendor to fully adopt French business practices, deliver from a local facility and interact in the local language, Apte said.

At the same time European companies are acutely aware of the need to send work offshore to save costs. "They will start with projects offshore that involve 30 to 40 people on a project, and then ramp up quickly," Apte said.