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Continental, Anyone?

With the US in a slump, Indian IT firms take a fresh look at Europe's wholesome markets

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Continental, Anyone?
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Goodbye America, hello Europe? For Indian IT companies, this seems the new mantra these days. The prolonged lull in the export market, primarily due to the slowdown in the US, has sent companies scurrying in search of fresh destinations to ply their skills. And Europe, they find, offers a potential beyond their dreams.

In the past few months, several Indian software giants have either made fresh forays into the European markets or increased their presence there. For some, over 35 per cent of their revenues are now being generated from the European markets alone. So much so that some expect software exports to Europe in the current fiscal to exceed those to the US.

Software giant Wipro has expanded operations in Europe, while TCS has a substantial presence in the UK and is expanding to other nations in the continent. Infosys Technologies too is concentrating on Europe and the Asia-Pacific, even China, as its new focus areas. Some others who have trained their sights on Europe include i-flex, Aptech and ICICI Infotech.

So what does Europe have to offer? According to Nasscom estimates, the software market in western Europe in 2000-01 was worth $128 billion, compared to $220 billion in the US. Yet, India's software exports were a minuscule $1.4 billion or 1.08 per cent. According to Nasscom, many of the vertical industry segments like banking, insurance and financial sectors are emerging as leading IT spenders in Europe, creating major demand for software solutions. India, with its impressive record of offshore project development, is best poised to tap this market.

Says Nasscom vice-president Sunil Mehta: "Apart from banking and insurance, the telecom sector is also emerging as a big IT spender which could benefit India since it has lots of experience in providing solutions in this area. Two new segments have also emerged—utilities, for areas like water and electric supply, and government—which are actively looking for offshore development of projects." TCS, India's largest software company, recently bagged a $43 million order from the UK, in the field of water supply. Wipro is engaged in a project for the Scottish Parliament.

Nandan Nilekani, Infosys MD, says "the European market is emerging as one of the strongest players in the world economy. The UK is a key target, being the second largest IT services market in Europe. To this end, we already have a proximity development centre in London".

Arjun Malhotra, chairman, TechSpan Inc, has a different take: "Developing Europe as a destination is imperative for the Indian IT industry. It is the only export area that can help balance our high dependence on the US. While Europe's contribution to the total IT exports has gone up from four per cent in 1993-94 to 24 per cent in 2000-01, these have been concentrated in the UK, France, Germany and Switzerland. There is definitely scope for expansion to other EU countries." Malhotra adds that the company's Europe initiatives will be led from India.

According to a study by the European Information Technology Observatory, the market for IT and telecommunications there is growing faster than the world average, and is even ahead of the US and Japan. Demand for telecommunications services and technology in particular is growing faster than expected. In 2000, Europe grew at a much higher 13 per cent, compared to the US and Japan which grew at 8.2 per cent and 6.7 per cent respectively. For 2002, it is expected to grow at 8.9 per cent. The UK is among the biggest markets in Europe with growth rates of 12.7 per cent in infotech and 15.9 per cent in telecommunications in 2000.

Europe currently has a share of 29 per cent of the world IT and telecom market, which was worth $1,772 billion in 2000 and was expected to grow by 9.6 per cent in 2001 to $1,942 billion. Western Europe represents the driving force in this. Says V. Senthilkumar, head, corporate marketing, i-flex Solutions: "Europe is second only to the US in terms of IT spend. And with the recent events in the US, it's not surprising that it's captured our attention."

According to a Gartner-Dataquest 2000 survey, worldwide total financial services spending for IT in 2001 stood at $348 billion, which is estimated to increase to $528 billion by 2004. Of this, the European market alone will account for $175 billion, not including Eastern Europe, which will contribute an additional $6.7 billion by that time.

Europe also has the largest base of banking back office systems installed and many of the banks are now looking at replacement solutions. This offers a big opportunity for Indian companies. Some of the leading banks and financial institutions in Europe are already using Indian software solutions. Infosys already has assignments from some of them, including DGZ Deka Bank, the ING Group and the Deutsche Investment Trust besides the National Health Service in UK.

So why didn't India focus on Europe so far? Says Vishnu Dusad, MD, Nucleus Software, which has large operations in the European banking sector: "The business was always there but typically, Indian companies never looked beyond the US because it offered a large and easy market to tap." In value terms, he feels Europe might have more potential than the US.

But will conquering Europe be a cakewalk as was the US? Says Malhotra: "Europe is a more complex market, multi-cultural and multi-lingual. The basis of selecting a vendor too differs dramatically between European and US companies. For example, vendor relationships take longer to establish in the UK and the Continent but once established remain for life." Dusad feels that a lot of reorientation is required by Indian companies to be able to make an equal success of Europe. "There is a qualitative difference between American and European companies. In the US, our conventional pitch that we know Java and C++ always succeeded. In Europe, we have to show that we understand their market dynamics and demands well. They look for complete solutions," he adds.

Says Suresh Rajpal, president and chief executive, Technova, a software start-up which concentrates more on Europe: "A large part of Europe has not heard of Indian software companies. In our survey, we found that 18 out of 21 companies had not heard of the biggest Indian software names like Infosys. It is an opportunity for India but access will not be as easy as the US because beyond the UK, language will pose a barrier. We will have to go after the markets and build relationships. That is what succeeds in Europe." So what does the future hold? Says Malhotra: "In the long run, I see Europe as a prominent destination. One of the ways, I think, this will happen is through India's existing US clients establishing their presence in Europe. This should help precipitate the inter-continental expansion." According to Nasscom, India's software exports to Europe in 2000-01 were worth $1.4 billion, a 48 per cent growth over 1999-00. In 2001-02, it is expected to grow by 35 per cent to $1.9-2 billion. The sector is expected to clock an overall growth of 30 per cent in the period. The target is to increase exports to Europe to $7 billion by 2005.

Is India equipped to maximise the European market? It could become more than that, say experts. Indian software and service vendors are known the world over for their strict quality standards such as CMM, PCMM and ISO certification. More than half the companies with SEI CMM Level 5 certification (the infotech equivalent of ISO)—32 out of the 58 worldwide—are headquartered in India.One of every four global giants outsourced their software requirements from India and leading product companies such as Microsoft, Oracle, Cisco, SAP and Adobe have set up development centres in India.

The year 2002 then looks all set to ring in a new chapter for Indian infotech services, with Europe promising to dispel most of the gloom caused by the US recession.

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