Europe Crisis : China's loss, India's gain

[trackwhack]

Fortress Europe opens up to Indian IT services - The Times of India

While manufacturing imports from China take a dive, cost cutting in services means a lot of IT offshoring on its way to India. I was wondering why it was taking so long before this news broke. Next year will be a windfall for Indian IT.

BANGALORE: The European crisis is acting as a catalyst in driving offshoring from a region that has traditionally preferred onshore IT services. The strong Europe revenue numbers and client additions of Indian IT majors in recent times indicate that clients are viewing offshoring as a cost and efficiency lever.

In calendar year 2011, top-tier IT companies grew their Europe revenues between 23% and 40%. In the just completed Oct-Dec quarter, they posted strong sequential growth in Europe, with Infosys growing at 17%, TCS at 19% and HCL at 6.3%. Europe also saw a larger share of multi-million dollar deals being signed than the US.

Infosys added 14 new clients in Europe of which two were in the $500-million bracket and these were the largest deals the company won in the quarter. TCS won 10 large deals in the quarter that included four from Europe, three from the US, and two from Asia-Pacific. HCL won 18 large deals worth $1 billion, in which Europe led the list in terms of value.

Europe accounts for about 20-30% of Indian IT's revenues, but a large portion of this comes from the UK. In Continental Europe, led by Germany ($44 billion in IT spends) and France ($37 billion), Indian IT has just a single-digit market share of IT spends. Other large but under-penetrated markets include Spain, Italy and the Nordic regions.

There are other factors too that explain Indian IT's improved performance in Europe. Anil Chanana, CFO at HCL Technologies, said Indian IT has developed capabilities both organically and inorganically to take on large and complex projects. European IT spends are skewed towards higher-margin, projectbased services such as system integration.

There are also emerging opportunities in 'run the business services'. Cognizant CFO Gordon Coburn said, "One of the things we are seeing as part of the current economic cycle, even in places like France and Germany, is that clients are beginning to openly address the issue of lowering their cost by moving application management services to the global delivery model."

Indian vendors have also made huge investments in Europe in the past couple of years and have appointed country heads recruited locally. Sanjay Vishwanathan, CEO of Sonata Software, said the growing success of the global delivery model, as well as service lines like remote infrastructure and cloud, are helping the cause of offshorers. Indian IT companies also have nearshore centres in Europe in countries like Hungary, Poland, Portugal and Romania.

A Deutsche Bank study with 55 major IT decision makers in Europe found that TCS and Wipro were the most favoured vendors. TCS has a greater revenue exposure to Germany and France, which gives it an advantage in this market. Wipro offers the best nearshore delivery alternatives and has recently made some key strategic acquisitions.

Infosys is said to offer high-end services on par with European and American counterparts, but is not very flexible when negotiating commercial terms. HCL's acquisition of Axon and strong infrastructure management capabilities has enabled it to win key deals in Europe but is still not viewed as a tier-1 player.

However Infosys CEO S D Shibulal cautions that despite adding 120 European clients in the last nine months, he would wait for a couple of quarters more to say confidently that the European uptick is a secular trend. There is also the danger of Europe falling into a deep recession which might lead to cuts in IT spends.

 

[sorcerer]

David Cameron had to stand up to China over its arrogant, clumsy efforts to stop him meeting the Dalai Lama

What can we learn from the Telegraph's disclosure that China has effectively frozen high-level contact with the British Government in protest over David Cameron's decision to meet the Dalai Lama last year? I think there are two principal lessons.

The first is that Cameron is right to stand firm against Chinese pressure. There is an important point of principle at stake. No British prime minister can allow a foreign power to dictate who he will or will not meet. If Cameron ever decided not to see the Dalai Lama because of China's objections, he would give Beijing an implicit veto over his diary. He would be allowing another country to choose his friends. At that moment, he would cease to be an independent leader and move towards becoming a mere vassal.

Rows of this kind are not new. When Nelson Mandela became South Africa's president in 1994, he made great play of thanking various leaders who had helped the ANC's struggle against apartheid. This included the likes of Colonel Gaddafi and Fidel Castro. Whenever he met them, America would vociferously object. And Mandela would get very angry. On one occasion, he memorably invited anyone who tried to dictate who he could or could not meet to "jump in the lake". I don't expect Cameron to emulate Mandela's turn of phrase, but he is right to stand firm.

And that leads to the second lesson. This whole affair tells us much about China. I once spoke alongside a Chinese diplomat at a meeting in the Houses of Parliament. I remember him saying that whether a country was "rich or poor, strong or weak, China will always treat them as an equal". Well, this episode betrays the reality. China thinks it has a right to try and dictate who other leaders can or cannot meet. That is not equal or respectful treatment by any definition.

This also exposes the incompetence of Chinese diplomacy. When a meeting between Cameron and the Dalai Lama was first on the cards, Beijing made the cardinal error of announcing publicly that the Prime Minister should not see him. That only painted Cameron into a corner. If he had refrained from meeting the Dalai Lama, this would have amounted to a public concession that Beijing had acquired a veto over the British Prime Minister's diary. That left Cameron with little choice but to go ahead. If, however, Beijing had made its approach in private, who knows, it might have had a better chance of success. So China comes out of this as both arrogant and inept.

David Cameron had to stand up to China over its arrogant, clumsy efforts to stop him meeting the Dalai Lama – Telegraph Blogs