Nasscom 2008 India Leadership Forum: Changing focus from the US to Europe

Mumbai: One of the first panel discussions to be held at the NASSCOM India Leadership Forum 2008 dealt with the subject of shifting focus from America to Europe as the target market for IT and ITES services.
 
A panel of eminent members of the industry, chaired by Mark Mayo, partner president, global resources management, TPI, discussed a broad range of issues faced by Indian service providers, as they shift focus from America to Europe as the next destination for growth of the industry.

Panel members included Darryn Lewis, head of information technology and telecoms unit at International Business Wales; Hubert Tardieu, executive vice president for consulting and systems integration at Atos Origin; Sanjiv Puri, managing director of ITC Infotech, Simon Ormston, head of outsourcing marketing at BT Global Services, and Sudhakar Ram, chairman and managing director of Mastek Ltd.
 
In his opening remarks, Mayo summed up the market opportunity awaiting Indian service providers in a single statement, saying "Europe is an under penetrated market with respect to Indian service providers", as outsourcing evolves as a tool in Europe.
 
Darryn Lewis, who propagates Wales as an investment location for global companies, said over the course of the last 10 years, Wales had witnessed 50 per cent growth in the number of IT companies that have come to Wales. Over the course of his interactions with over a 100 companies over the past six-odd years, Lewis said that what was noteworthy was that first time international companies, comprising small and medium enterprises we leveraging the opportunity and setting up shop in Europe.

He said that while the US has been witnessing a 30 per cent decline in investment, Europe on the other hand, had witnessed a 50 per cent increase in incoming investments.
 
Elaborating further, Lewis said the market shift to Europe was becoming a reality, as is testified by the number of contracts done in recent times, which exceeds those done with the US. He attributed the number one market driver that is facilitating business into Europe as market proximity to offshore locations, and near shore locations.
 
Hubert Tardieu, described how Europe would be different to the US market for offshore, saying that, "Trend is increasing for offshoring linked to business outcomes, and savings that can be measured." He said that large packaged solutions such as ERP were more likely to be the norm in Europe, adding that contracts on fixed costs, and service level agreements tend to prevail in Europe, against T&M (time and materials) agreements that the US seems to prefer. He said the phenomenon of fixed price outsourcing would be what Indian companies would need to work on, which is quite fundamentally different to the T&M models they industry is used to with regards to their experience with the US market.
 
Tardieu also said that the Europeans prefer to outsource basis unit of work done, or against measurements by function points rather than on a time and materials basis.  He said the ability of companies to work on fixed price could well be a success factor in the geographic expansion of Indian service providers to Europe, adding that best practices from infrastructure outsourcing could prove to be a key in cracking the European outsourcing opportunity.
 
Sanjiv Puri contributed to the discussion by saying that his company, ITC Infotech, already has around 50 per cent of its business coming from Europe. He too pointed out that while the average US contract value was shrinking, the number of outsourcing contracts from Europe were in fact, increasing. Adding that the industry was part of the 'wired' world, and part of an interconnected globe, it is now imperative for companies to be globally competitive, as the pace of change has increased, and impacts are now felt around the world much faster.
 
Sharing his views on how Europe has changed over the recent years with respect to outsourcing, Puri said that Indian players have attained critical mass in Europe, and now have wider acceptability on account of a deeper appreciation and understanding of the region, given the language issues that different regions of Europe portray.

He said that near-shore outsourcing to Eastern Europe was unable to cope with the demand for outsourcing, which represents an opportunity for Indian service providers. Moreover, another enabling factor was the relative ease of mobility of people into Europe, which is much better than in the past. Puri said that the Europeans prefer a partnership based approach, as opposed to a cost arbitrage that prevails in the US. He cautioned that the local work ethic differs from region to region across Europe.
 
Simon Ormston said that as a market, Europe was less homogenised than the US, with local differences of culture, taxation, and legal systems, which Indian service providers would take some time getting used to. He said some of the points European customers would look at include the ability to maintain cost advantage, and a way to manage staff expectations at offshore, which would include rewarding performance against the largely prevlant trend of rewarding capability.

That, Ormston said, would also address the problem of attrition. He said companies should work at trying to attain a 'preferred partner' status, over time, after having showcased their ability to deliver, drive innovation, and getting on board local European resources who understand the local market. He also said that the ability to 'hot swap' locations for business continuity would play a major role in the success of Indian companies in Europe.
 
Sudhakar Ram said that Mastek already has 65 per cent of its business coming from Europe, and had infact, moved from Europe to the US rather than vice versa. He said the US market tends to appreciate time and materials agreements, as opposed to fixed cost and accountable offshoring that Europe prefers.

Calling it the opportunity of riding the 'third wave' of the industry, which will play on value based work to attain the $100-billion mark, he said that there were immense opportunities for smaller companies to play in their niche areas, rather than adopt conventional ways of offshoring that were seen during the 1st wave of the industry being a component supplier, and then the second wave of being an 'OEM market' leveraging labour arbitrage work. He said the essential measure would be 'ROT', or return on talent, as abundant labour will not exist in the long run, and companies would need to move up the value chain. He believes that over the next 7 to 10 years, this has the ability to change the face of the industry, if the third wave was to be viewed as an opportunity.