Indian IT firms eye continental Europe for growth

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Indian IT firms are looking to offset their exposure to a recession-battered US market by targeting high-growth geographies, and bidding for government projects on their home turf.

Traditionally, Indian outsourcing firms have earned a little over half their revenue from the United States. But with the economic slowdown scuttling growth, these firms are eyeing new geographies as a supplement.

Europe, which accounts for about 20 percent to 30 percent of India's outsourcing revenue, has remained largely unexplored as a market for top-tier Indian IT firms, and holds a lot of promise for further expansion, according to analysts.

Infosys, Wipro and Mahindra Satyam are looking to strengthen their foothold in continental Europe and establish beachheads in several other countries, their executives said at the Reuters India Investment Summit.

Infosys' Chief Financial Officer V. Balakrishnan said his company was interested in acquiring smaller companies in France and Germany, and counts Japan, Australia, Canada, the Middle East and Africa as high-potential emerging markets for expansion.

Germany and France figure prominently on the radar of Indian IT companies as they look to boost growth in Europe.

Atul Kunwar, president, global operations, Mahindra Satyam, said continental Europe missed the first wave of outsourcing, but business is gaining traction in Germany, France, Holland, Belgium, Spain and Italy.

RBS Equities Research analyst Pankaj Kapoor said markets like Germany and France have not really opened up for Indian IT players because of language barriers.

"We are looking at multiple solutions to that. Hiring local talent is one option... But yes, it remains a challenge," Kunwar said.

Tata Consultancy Services, Infosys and Wipro have recently made acquisitions in Latin America, Eastern Europe and China, which are expected to help them gain clout when bidding for global support contracts in the future.

However, the executives reiterated that the United States and Europe would remain their major markets, since they constituted the bulk of global IT spending.

"The revenue mix is not going to swing substantially... All this expansion will not come at the expense of the U.S. market," said Suresh Vaswani, joint CEO of the IT business of Wipro, India's No. 3 software services exporter.

In the long term, revenue from the United States and Europe should reset at 40 percent each, while the rest of the world's contribution is expected to climb to 20 percent, Infosys CFO Balakrishnan said.

ON HOME TURF

While Tata Consultancy and Wipro have bid for government projects in India in the past, Infosys is the latest entrant, stepping up its efforts to grab a share of the pie.

"The Indian government is spending a lot of money. Most of the bids are going to be decided on low price and high technology, so we need to be very selective," Infosys CFO Balakrishnan said.

While the United States contributed 63.2 percent to Infosys' revenue in the last fiscal year, India chipped in with less than 2 percent. But the company still expects to generate $1 billion in revenue from the Indian market in the next two to three years.

Mahindra Satyam's Kunwar said the company was aggressively pursuing government deals domestically and had won e-governance contracts ranging from $5 million to $100 million in India in the environment, city infrastructure, and irrigation and agriculture space.

Earlier this year, a unit of Wipro won a contract worth 11.82 billion rupees ($228 million) to set up an online facility for improving healthcare services at the Employees State Insurance Corp.

"The defence and government sectors in India are opening up and we do want to be a significant player in them, especially in the domestic market," Manish Dugar, CFO of Wipro Technologies, said.