Despite a debt crisis in Greece, Spain, and Portugal, other countries in Europe, such as Germany and France, besides the Nordic region (Sweden, Norway, Finland, Denmark) and Benelux (the Netherlands, Belgium, Luxembourg), are expected to continue and, in some cases, even increase their outsourcing and offshoring work to low-cost countries like India and Philippines.
Gilbert Van Der Heiden, Gartner's research director for information technology (IT) sourcing explains that though Europe is still fragile, they are certainly seeing an uptick in outsourcing, as well as offshoring from European clients. Deals are getting shorter and smaller in duration, but it certainly is increasing. To give you an idea of the 800 inquiries that we received last year from European clients, about 90 per cent asked us about offshoring. The UK, according to Gartner's forecast on enterprise IT spending for 2010, was expected to witness a growth rate of 3.8 per cent for 2010, while Germany was expected to grow by 3.2 per cent. For France, it was 4.3 per cent and the Nordic regions, 4.2 per cent. While Benelux is expected to clock a 4.6 per cent growth rate.
Earlier European customers started with staff augmentation but as they see the cost advantage, they are looking beyond that and want to partner at a strategic level. Other than the economic downturn and need to cut cost, European customers use a large number of contractors. Due to the immediate cost savings initiatives, they are looking at replacing expensive contractors with offshoring. IT firms also agree that Europe is much more positive to offshoring than it was before the global meltdown hit. European clients are much more open for discussions now. We have seen some good traction in the government and the healthcare segment.
"The Europe crisis will not have much of an impact on Philippine IT service providers. The impact will be on valuations due to the currency movement, but this will not impact the deal flow. Similarly in the UK, the incumbent government is under huge pressure to reduce cost," says Peter Bendor Samuel, Chief Executive Officer, Everest Group. Much more, Philippine outsourcers have been urged to turn their attention to European customers to expand their markets. European Chamber of Commerce and Industry in the Philippines executive VP Henry Schumacher said the Philippines is still unable to fully maximise the outsourcing market, which is currently being enjoyed by India. Philippines has a huge potential to even grab a bigger share. Since Europe is also aggressively looking at opportunities from emerging countries in the east, Philippines set to explore Europe since it is also the largest business process outsourcing market.
And, more than 25-30 per cent of revenues of the Indian and Philippine IT Outsourcing firms come from Europe, especially the UK. For the top three IT firms, the revenue contribution from Europe is over 25 per cent. A one per cent appreciation (or depreciation) in the currency means a 40-basis points positive or negative benefit on the operating margins of companies. This particular volatility is expected to have a 0.9 to 1.3 per cent cross-currency impact for the quarter, predict analysts.
Vikram Gulati, Director of Quantum Step remarks that Europe has some serious challenges. The population is ageing, and they are running out of skills. They will have to look at outsourcing and offshoring. Most of the large players have benefited from this. It is for the others, the medium-sized players, to adopt this.
Gilbert Van Der Heiden, Gartner's research director for information technology (IT) sourcing explains that though Europe is still fragile, they are certainly seeing an uptick in outsourcing, as well as offshoring from European clients. Deals are getting shorter and smaller in duration, but it certainly is increasing. To give you an idea of the 800 inquiries that we received last year from European clients, about 90 per cent asked us about offshoring. The UK, according to Gartner's forecast on enterprise IT spending for 2010, was expected to witness a growth rate of 3.8 per cent for 2010, while Germany was expected to grow by 3.2 per cent. For France, it was 4.3 per cent and the Nordic regions, 4.2 per cent. While Benelux is expected to clock a 4.6 per cent growth rate.
Earlier European customers started with staff augmentation but as they see the cost advantage, they are looking beyond that and want to partner at a strategic level. Other than the economic downturn and need to cut cost, European customers use a large number of contractors. Due to the immediate cost savings initiatives, they are looking at replacing expensive contractors with offshoring. IT firms also agree that Europe is much more positive to offshoring than it was before the global meltdown hit. European clients are much more open for discussions now. We have seen some good traction in the government and the healthcare segment.
"The Europe crisis will not have much of an impact on Philippine IT service providers. The impact will be on valuations due to the currency movement, but this will not impact the deal flow. Similarly in the UK, the incumbent government is under huge pressure to reduce cost," says Peter Bendor Samuel, Chief Executive Officer, Everest Group. Much more, Philippine outsourcers have been urged to turn their attention to European customers to expand their markets. European Chamber of Commerce and Industry in the Philippines executive VP Henry Schumacher said the Philippines is still unable to fully maximise the outsourcing market, which is currently being enjoyed by India. Philippines has a huge potential to even grab a bigger share. Since Europe is also aggressively looking at opportunities from emerging countries in the east, Philippines set to explore Europe since it is also the largest business process outsourcing market.
And, more than 25-30 per cent of revenues of the Indian and Philippine IT Outsourcing firms come from Europe, especially the UK. For the top three IT firms, the revenue contribution from Europe is over 25 per cent. A one per cent appreciation (or depreciation) in the currency means a 40-basis points positive or negative benefit on the operating margins of companies. This particular volatility is expected to have a 0.9 to 1.3 per cent cross-currency impact for the quarter, predict analysts.
Vikram Gulati, Director of Quantum Step remarks that Europe has some serious challenges. The population is ageing, and they are running out of skills. They will have to look at outsourcing and offshoring. Most of the large players have benefited from this. It is for the others, the medium-sized players, to adopt this.
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