Top Indian IT companies including Tata Consultancy Services (TCS) and Infosys continue to gain favour among enterprise customers in the Nordic countries of Sweden, Finland, Denmark, Norway and others, amidst a cut in tech budgets and macroeconomic weaknesses persisting in the overall European and US markets.
The Nordic IT services market within Europe grew to $29.5 billion in 2023 from $24.4 billion in 2018, according to data from UnearthInsight. To be sure, this is still a relatively smaller IT services market by size as compared to the United Kingdom and continental Europe.
The top Indian IT companies, which also include HCLTech, Wipro and Tech Mahindra, have been expanding their presence in the Nordic region by building centres, framing localised strategies and hiring a dedicated employee base in these countries.
TCS has almost 20,000 employees in the Nordic countries and also one of its biggest customers, Telenor, as per UnearthInsight’s data. TCS’ headcount has doubled from about 9,000 in 2018.
Infosys has over 2,500 employees in the region. It opened a centre in Sweden in December last year. Wipro has over 2,000 employees and HCLTech has about 1,600 employees in the region.
After sustained growth in Finland, Tech Mahindra announced a new local innovation centre in Espoo in September.
Experts and analysts called this demand uptick from Nordic customers a reflection of the price competitiveness, ability to become long-term strategic digital transformation partners, and the quality hi-tech services provided by Indian IT services companies.
Pricing opportunities
“If you look at a differential between a local tech services or global tech services firm versus Indian tech services firm, it's easily 10 percent to 15 percent, or in some cases, up to 18 percent,” said Gaurav Vasu, founder of market intelligence firm UnearthInsight. “Infosys’ Danske Bank deal is a good example of the growing popularity of Indian IT services firms.”
Infosys bagged a five-year digital transformation deal worth $454 million from Danske Bank in June 2023.
Vasu said that inflationary pressures are expected to continue in the Nordics too, but instead of curtailing overall tech spending, they are opting for vendor partners with strategic capabilities.
“They are open to choosing more optimal partners who can help them sustain at 4-5 percent of revenue, as technology spend reduces from about 6 percent over the next three to five years. European clients believe Indian pure plays will actually help them with around 1.5 to 2 percent cut and partner with them to sustainably deliver the outcomes,” he added.
Pareekh Jain, founder of EIIRTrend, said a lot of the business from regional service providers are now going to Indian IT companies in the Nordics.
“Indian IT firms are seeing more market share in these regions as compared to global counterparts. As technology is improving, these IT firms are able to invest in new technologies at a scale that regional service providers might not be able to… Only MNCs can invest,” Jain told Moneycontrol.
He added, “Nordics is the first preference for the Indian IT companies outside their other core geographies because it’s easier to access. There aren't many language constraints as most people speak English. Also, unlike countries like Germany and France, Nordics are more open to outsourcing and do a lot of business in other countries.”
Vasu said Europe-specific tech partners have not been able to manage the cost inflation situation and the pricing situation as well as Indian players.
Spending recovery
According to data from technology research and advisory firm ISG, Nordic expenditure on managed-services outsourcing is now close to pre-pandemic levels. The managed-services business recorded a 9 percent increase in annual contract value in the first half of 2023.
Chris Owen, principal consultant, Nordics, ISG, said this growth in tech spending across the Nordics was driven by the manufacturing and financial services sectors. Even the recent fall of the region’s currencies, especially against the dollar and the euro, played a role.
“This has increased the pressure on companies with local revenue bases to optimise costs via technology-driven transformation, alongside partners with accelerators to help. The primary driver, however, continues to be access to talent, partnering with experts to help organisations on their digital journey, and the maturity of the Nordic enterprise buyers is high (some even 4th generation outsourcers now). So we see this being procured from a truly global mix of providers, albeit ones who offer at least some local delivery resource,” Owen told Moneycontrol.
While the Indian IT companies have had customers in the Nordics, the market has accelerated in recent years and they are looking at it more strategically because the US and European markets remain uncertain, EIIRTrend’s Jain said.
Nordic companies are also more open to selling their captive centres as not many of them were big and scaled-up, he added.
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