Europe Market holds potential for Indian IT Service Providers

Top tier Indian IT service providers have shown robust growth in second quarter of fiscal 2012. The combined sequential revenue growth for TCS, Infosys, Wipro & HCL is 4.5% with negligible growth in net profit. This can be attributed to salary increase, promotion and fresher’s joining the companies in the last quarter.

 

 

Q1   FY 2012 ( % Revenue Contribution)

Q2   FY 2012 ( % Revenue Contribution)

TCS

Infosys

Wipro

Cognizant*

HCL

TCS

Infosys

Wipro

Cognizant*

HCL

Americas#

56.00

64.20

53

78

54.40

57.40

65.30

51.70

78

55.80

Europe

25.20

21.30

28.60

19

27

25.60

20.50

28.80

19

26.60

India

9.30

2.60

9

 

 

8.30

2.20

9.30

 

 –

Others

9.50

11.90

9.40

3

18.50

9.70

12

10.20

3

17.50

*Cognizant revenue distribution is based on FY 2010 since the company does not declare revenue distribution on Quarterly basis

* Americas include North America & Latin America

* Europe include UK & Continental Europe 

In terms of geographical revenue distribution there is an increase of percentage point in revenue contribution from Americas for TCS, Infosys & HCL while Wipro saw a decline. There is decrease in revenue contribution from India market while Europe has seen muted growth except for TCS and Wipro who have seen a slight increase in revenue contribution. The sequential growth rate for the four India headquartered companies in Europe is less than that of growth rate for Americas.

 However, the questions that need answers are: If the current macroeconomic environment is going to affect the growth of Indian companies in Europe and what impact will the unfolding European economic crisis have on their future growth prospects.The crisis is limited to few European nations such as Greece, Italy, Spain and Portugal. All these markets are not the target markets for Indian IT companies. However the cascading effect will be felt across Europe and others parts of the world in the event of a disorderly meltdown. This may lead to slowdown in economic activity thereby lengthening the decision cycle. We need to watch as how the situation unfolds after a decision on Greece is taken. This will of course depend on the political turmoil within Greece also.However, the impact on Indian IT service provider will be temporary and short term while the long term opportunity continues to look promising.The IT outsourcing market continues to be strong in Germany with growth momentum visible in Nordics and Benelux. The discussions for outsourcing and offshoring are moving on to the next level where companies are getting mandates from their boards for initiating IT outsourcing to reduce cost.  Based on the last quarter outsourcing deal analysis Europe market is equivalent to United States in terms of deal volume though average deal size is lower. BFSI and Government have emerged as the top sectors for outsourcing in the Europe.The biggest challenges for Indian companies are their low visibility within the European buyer community and low onshore and near shore presence. Additionally companies need to deftly manage politico-socio situations arising in cases of asset transfer including human resource and offshore led job losses. In our recent engagement with a global company headquartered in Europe we observed that each country has their unique set of regulations to deal with situations and the level of complexity and difficulty in dealing with unions varies across the countries.  

   

  

   

 

   

   

               

  

   

  

   

   

 

 

 

 

 

 

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