IT firms see jump in Europe business in Q1

Venkatesh Ganesh Mumbai | Updated on August 11, 2020

With the onset of Covid-19, many companies in Europe are shedding inhibitions towards outsourcing

Even as the US places restrictions on outsourcing, software exporters are seeing a rise in business from Europe.

In Q1FY21, TCS Europe revenues grew by 2.7 per cent, while the company’s revenues from North America were down 6.1 per cent. Europe business for Infosys grew by 4.4 per cent in constant currency at a time when North America reported flat growth. For HCL Tech, Europe business grew 11.4 per cent on yearly basis.

For Hexaware, Europe was the best-performing geography despite forex (euro) headwinds. Companies exclude the UK when they report revenues from Europe.

With the onset of Covid-19, many companies in Europe, which have been laggards in terms of outsourcing, are left with few options to sustain and grow their business. Overall, Europe contributes about $30 billion to exports.

“We anticipate Europe to grow faster as companies are beginning to shed their outsourcing inhibitions,” said R Srikrishna, CEO, Hexaware.

Apart from the growth numbers, from a geography perspective, deals are starting to come in, albeit in a gradual manner. For example, technology spends have accelerated across key European banks such as Credit Suisse, UBS, and Banco Santander, according to Motilal Oswal.

Jagannathan Chakravarthi, CFO of Sonata Software, is of the view that outsourcing queries have started to come in and budgets of companies have gone up. The industry, however, is hesitant to put a number as the pandemic continues to spread .

So far, Indian companies have not really been able to crack the European market, apart from the UK and Scandanavia. “There are language and cultural issues. There is a union problem in replacing people. So, companies don't outsource that much,” according to Founder and Lead Analyst, EIIRTrend and Pareekh Consulting.

All this, however, is slowly changing. In Q1, TCS’ $6.9 billion deal wins included a mix of European companies such as Swiss Financial Services, Rabobank and Tryg Forslkring.

Covid should accelerate the need for digital in European enterprise. HCL had won a $600-million deal with Ericsson recently. Wipro acquired 4C, a Belgium-based company which is one of the largest Salesforce partners in the UK, Europe and the Middle East. Some large deals in Europe included HCL-Volvo, Infosys-ABN Amro, among others.

There are also many large multinationals in different sectors, which are based out of Europe. In the first wave of outsourcing, deals went to players with strong regional European providers such as Capgemini.

So, can India-based software majors capitalise on this new found opportunity? Jain believes that Indian service providers need to invest more in local delivery and acquire European firms. “Most Indian firms look at Europe from UK-based operations and that needs to change. Also the leadership of Indian firms are either in the US or India, which needs to move to Germany or France,” he said.

On the ground, however, banks in Europe and North America are poised to provision for the greatest increase in defaults since 2009, and unemployment will keep rising as governments will be under pressure to protect jobs. In July, the European Commission said that it expects the EU economy to shrink 8.3 per cent in 2020.

Published on August 11, 2020

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