According to Forrester Research, Western European firms are showing a preference for contract IT staff and this appears to be eating into the outsourcing business in these locations.
Though outsourcing is popular in the U.K., companies at other Western European locations have a preference to add to their internal IT staff with staff that are supplied by contractors who work within the company premises.
Interestingly, Western European firms are not scurrying to slash costs via outsourcing abroad. Rather, these companies are seeking to be well integrated against the social backdrop of their surrounds. In addition, this priority includes not cutting jobs in their countries and sticking to labor laws as the ‘law of the land.’
According to Forrester, India exports IT services valued at $ 6.8 billion to Western Europe and this does not include the U.K. This figure represents 5 percent of the total IT services market in the area. Outsourcers from India like to manage their staff on their own. Additionally, they also offer delivery from their own offshore sites. However, this has kept Indian firms from winning a great deal of business in Europe.
Meanwhile, Eastern European countries were projected to benefit from their proximity to Western Europe and their cultural similarity to the region. However, they are not able to win a lot of business in Western Europe. Apart from that, near shore destinations in Eastern Europe export less than $676 million to Western European countries, leaving out the U.K.
Although many firms stay away from outsourcing, big MNCs in Europe who already have experience operating in a number of countries typically outsource to offshore destinations like India. These firms are competing with big name U.S. firms that are already plugged into cheap offshore resources. Nonetheless, Forrester says that the trend is not catching on in Western Europe.
With a slump in revenue due to the recession in the U.S., Indian outsourcing giants, Infosys, Wipro and Tata Consultancy Services have stepped up efforts in Europe to counteract their efforts in the U.S. IT outsourcing in India
has begun to concentrate on expanding their business in Europe, particularly as an alternate market to the U.S.
In aggregate, Europe still represents a small share of the Indian outsourcing revenue. India’s No.1 outsourcer, Tata Consultancy Services, took in 18.5 percent of its net revenue from U.K. and 10.7 percent from other parts of Western Europe. Concurrently, the U.S. represents 52 percent of the company’s revenue in the quarter to Dec.31, 2009.
Competitors in the business, which includes multinational service providers typically hire staff to work in Western European firms – just to get their ‘foot in the door.” After initializing these accounts, they move toward outsourcing work to nearshore destinations like countries in Latin America, i.e. Brazil
Nonetheless, Forrester says that Indian firms are inflexible in their approach to outsourcing at least in Europe. The group added that India should not expect to see a dramatic improvement in their Western European business, except in the U.K. A few years from now, Indian will still represent about 12 to 15 percent of the net IT services business in Western Europe (not taking into account U.K.), even if their approach is modified significantly.
Jacob Cherian writes for SourcingLine, a leading provider of directories on ecommerce development companies