Indian IT firms on waitlist for European play

MUMBAI: Indian IT firms looking to reduce dependency on the US and boost Europe revenues may have to wait a little longer. Even pursuing an aggressive acquisition policy to get a local presence in Europe may have to be put on hold, as a majority of European companies continue to show a high preference for local vendors to service their IT needs.

“Growth in IT spending by European companies is moderating, but the good news is that faster growth pockets exist where European suppliers perform well in comparison to overseas rivals — IT services, mobile devices and enterprise software,” consultancy firm KPMG said in a study released for European markets recently.

The study, based on a survey covering more than 20 European countries, found that more than half the respondents planned to boost IT service spending with local suppliers, while 44% opted for local suppliers even for enterprise software and mobile devices.

“Less than one-third of European IT managers say they plan to ramp up their spending with suppliers from Asia’s emerging markets, despite the latter’s typically lower prices,” the study stated. Europe has been the fastest-growing region for Indian IT firms over the last 6-8 quarters, and many of them have been counting on ratcheting it up by making inroads into continental Europe.

However, the study indicates that Indian players are unlikely to get any significant result unless they acquire a European IT firm, which would offer them a local foothold. The IT market in Western Europe is estimated to be at around $400 billion in 2008, including hardware, software and services.

Currently, the UK dominates the Europe revenues of Indian IT firms. According to Nasscom figures, Europe contributed 25% of the software industry’s exports in FY06, up from 23.2% the year before. Of this, UK’s contribution was 15.3% in FY06, up from 14% in the previous year.

Tata Consultancy Services, which was recently rumoured to be in talks with T-Systems for a stake, corners about 20% of its revenues from the UK as against 8.5% from continental Europe.

“European customers display a high degree of regional loyalty. Nearly nine out of 10 IT managers in the survey would prefer to utilise local suppliers for at least some IT products and services. A relatively high percentage say they have had unsatisfactory experiences with overseas suppliers,” the study added.

But in what may hold some cheer for Indian IT players, the study found out, central and Eastern Europe provide attractive near-shore location options for European vendors. This may throw open some opportunities for Indian IT majors with development centres there such as Satyam which has a centre in Budapest.

Interestingly, the study observed that US vendors would be strong competitors in public sector IT spending in central and Eastern Europe, which is an area to look out for. The study noted that poor price competitiveness is one of the major stumbling blocks for European IT vendors, especially when it comes to global competition. “In general, European IT companies are at a disadvantage in this area in comparison to US and Asian rivals,” it said.