The Indian IT industry’s love affair with the United States may finally be winding down. The value of ‘managed services’ contracts from the country—the bread and butter of Indian service providers, accounting for 62% of India’s IT exports—is on the wane. In the year ended December 2019, the US’ managed-services market shrank marginally compared to the previous year: $13 billion versus $13.7 billion, according to technology research firm ISG.
At the same time, American firms were increasingly moving to the cloud. There has been a rise in the value of ‘as-a-service’ cloud-based technology deals, with new deals moving to companies such as Amazon Web Services (AWS) and Microsoft Azure. In 2019, cloud services providers grabbed deals worth $15 billion, a 25% increase over the previous year.
This shift has meant that the traditional stronghold for Indian IT firms risks becoming a long-term liability. And now, companies are seeing the prospects of growth from a continent that has been a more peripheral part of their operations—Europe.
At $23 billion, the value of managed services contracts in Europe, Middle East, and Africa (EMEA) was almost 2X the value of the region’s cloud-services business—$12.2 billion—across 2018 and 2019.
The change was reflected in the recent earnings calls of some of India’s biggest IT consultancy firms. “Europe grew by 4.4% on constant currency whereas North America was flattish,” said UB Pravin Rao, chief operating officer at Infosys Ltd, during an earnings call in July 2020. “Even in our past quarters, we have seen Europe performing relatively better,” he said.
A similar story played out at Infosys’ rival and India’s largest IT firm, Tata Consultancy Services Ltd (TCS). Europe accounted for 31% of TCS’ $22 billion revenue for the year ended March 2020. In the first quarter of the current fiscal, its Europe revenues grew 2.7% over the previous year, whereas other markets were flat or had declined.
Continental Europe has been the third largest geographic market for large Indian IT firms for over a decade. But even in third place, Europe still accounted for only 11% of India’s total IT exports for the year ended March 2020. Now, the shifting sands of the sector have made it more important than ever for Indian firms looking to firm up their growth metrics.
In 2019, TCS secured a $200-million deal with the National Railway Company of Belgium (Nationale Maatschappij der Belgische Spoorwegen, or NMBS). The deal is an example of the sort of potential waiting to be tapped.
For all the opportunity it plays host to, though, cracking mainland Europe is no easy task. With myriad countries, each with its own language and cultural nuances, there is no one-size-fits-all approach to conquering the continent’s various markets. The prominent ones are Nordics (Denmark, Norway, Sweden, Finland and Iceland), Benelux (Belgium, the Netherlands, and Luxembourg), and DACH (Germany, Austria and Switzerland).