The race is on for lucrative global sourcing deals. As South Africa gears itself to provide an anticipated 100 000 jobs in this sector, India is already making inroads into the European market.
Indian offshore service providers are posing a challenge to continental European competitors as enterprises within Europe increasingly seek to take advantage of global sourcing, according to Gartner.
Unlike enterprises in the US or UK, continental European countries have been historically more reluctant to engage with offshore providers to support their business needs because of political sensitivity, labour laws, language requirements and cultural compatibility. Globalisation, however, is spawning new competition that European companies can not ignore.
In the last months of 2006, leading offshore providers in India released quarterly earnings announcements that signaled strong earnings in Europe. Despite these providers not specifically disclosing major client wins in Europe, these earnings announcements show how Indian service providers have achieved traction in the traditionally difficult continental European market.
They also demonstrate how, especially outside the UK, few European organisations are comfortable with the idea of publicly announcing the use of offshore outsourcing. This is because European business leaders still worry about offshoring's effect on their company's workforce and image.
"Tier 1 Indian offshore providers, without exception, have recorded outstanding growth rates since the first quarter of 2006. The three largest (TCS, Infosys and Wipro) have recorded year-on-year growth of more than 40%, while Cognizant has enjoyed a 60% growth rate. Although the US is still the largest market for these companies, their European divisions have shown the strongest growth, thanks to strong acceptance in the UK and an increasing number of customers in continental Europe," says Claudio Da Rold, vice-president: distinguished analyst for Gartner's IT sourcing group.
"These Indian offshore providers are recruiting staff in the European markets they sell into; not just sales staff, but consultants, project managers, engagement managers and, in some cases, personnel to staff their new nearshore delivery centres," adds added Ian Marriott, vice-president: research for Gartner's IT sourcing group.
"However, Indian service providers must tread cautiously and first deal with further challenges before they can compete on an equal footing with the major traditional providers."
According to Gartner, Indian providers face three big challenges if they hope to be seen as equals with traditional European providers: European providers enjoy entrenched mind share; they are reluctant to publicly acknowledge offshoring; and a large labour pool can become unwieldy.