European Offshoring To India On The Rise

Zinnov Management Consulting has announced the results of a new study titled, ‘European Software Product Market - An Opportunity Unexplored’, which talks about the outsourcing equation between Europe and India and its evolution. According to the study, while North America contributes about 42 percent to the global R&D spend; the European market has a contribution of 35 percent, followed by Asia at 22 percent and rest of the world at 1 percent. Companies are realigning their global strategies in wake of the recent US meltdown and Europe continues to hold strong growth prospects for India and other countries in the region.

Chandramouli, director - Advisory Services, Zinnov Management Consulting, said, “With the changed ecosystem in India and Europe, offshoring shows an aggressive growth trend and some of the drivers that are helping increase offshoring to India are: the available talent pool in India, the increase in the IT spend over time, cost arbitrage, the innovative capabilities of India and the current exchange rate. All these factors have resulted in a potential of over 8 - 10 billion euros of addressable market for European companies’ R&D operations in India.”

Figures from the study substantiate the above observation. The study shows that the top ten European software companies, who contribute 65 percent of revenue have R&D operations in India. Also, the number of European captives in India has grown four fold from a count of 4 in 2001 to 18 in 2008.

Though offshoring from Europe began in the early 90s, the momentum started picking up only in the last four years and the number of Software Product Development captives in India has doubled in such time, according to the study. Till the year 2003, there were only five captives and post that, the number of European companies setting up captives in India has gone up by 200 percent.

The study reveals that out of the top 100 European companies, 18 companies already have 23 captive centres in India (Bangalore alone accounting for 50 percent of companies and 1/3rd of the captives, due to presence of high IT infrastructure and large talent pool). NCR and Chennai are the other preferred locations for European captive centres in India.

In the last decade, there has been a change in the ecosystem in Europe and India because of many micro and macro factors. The labour laws in Europe, which were very strict earlier, have become relaxed with changes in the government regulation. In the past, countries such as Germany and France have had very rigid labour laws. It is only very recently that the Government of both these countries is taking huge initiatives to ease labour laws, which will help them increase outsourcing/ offshoring. The countries are now considering offshore service providers to handle government contracts. All these spell big opportunity for India despite the current economic slowdown, according to Zinnov.