Europe Difficult for Indian Outsourcers, Says Forrester

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Indian outsourcers increased their focus on the European market as the recession ended to make up for the loss of business in their main market, the U.S.

Their efforts have not been very successful, because these companies are up against resistance to outsourcing in Europe and a preference for suppliers with a significant European presence, according to a report by Forrester Research.

Indian companies also do not understand the cultural nuances involved in doing business in Europe, including that Europeans do not want to be pushed too hard into expanding business with their new suppliers very quickly, said Sudin Apte, principal analyst at Forrester, on Thursday.

Unlike multinational services companies that offer a variety of services in Europe, Indian companies that have set up facilities in Europe are focused on a few lines of service, Apte said. Indian companies are also trying to address the entire European market from a few locations, while most multinational services companies have a presence in many European countries, he added.

Indian outsourcers' revenue from Europe was US$14 billion in the Indian fiscal year to March 31, 2009, with about $9 billion from the U.K. and $2.1 billion from Germany, according to Forrester. This is only a small percentage of the IT services market in Europe during the period, Apte said. The size of the IT services market in three countries -- Germany, France and the U.K. -- was more than €70 billion (US$93 billion at the exchange rate on the last day of the fiscal year), he added.

A large proportion of the IT services market in Europe includes demand for placement of outsourcers' staff on clients' premises under the project management of the client, Apte said. Indian outsourcers do not figure in this business, because they don't have much staff in Europe, he added.

Indian outsourcers do not as yet have the right business model to expand their business in Europe, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International (TPI), which is based in Houston.

European companies want their suppliers to have a significant presence in their countries, Pai said. They would also like their suppliers to help them avoid sacking IT staff by absorbing them in their own staff, Pai added.

Some large Indian outsourcers like Infosys Technologies and HCL Technologies have signed deals that involved taking over staff from clients in Europe. But Indian outsourcers are still focused on selling India as a low-cost offshore location, Pai said. They are wary of hiring staff and expanding in Europe because it will shrink their profit margins, Pai added.

Indian outsourcers have to evolve into global companies with operations and delivery from multiple locations worldwide, rather than focus on delivery from India alone, Pai said.

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