Indian IT firms expect short term impact of European debt crisis

November, 24, 2011: The Indian Information Technology service providers are on the path of stepping up their efforts to boost their revenue from the European market. According to top executives from IT companies at the Reuters India Investment Summit, they consider the impact of the European debt crisis as a short term phenomenon. 

The debt crisis is now moving closer to the heart of euro zone, with the fear that the bane may now spread from Greece and Italy to Spain and France.  

The Indian Information technology service providers are benefited by the increased outsourcing by companies in the European zone, which are trying to cut cost. Europe now forms the second largest market for the Indian IT service providers. So as the crisis in the region deepens, companies are likely to outsource more in an attempt to cut costs.

According to Gordon Coburn, Chief Financial Officer at Cognizant Technology Solutions, they have observed that clients which were hesitant to outsource functions like application management in the past have now started to look for outsourcing such type of services.

 

The recession hit US market, which forms the major exporting market for the Indian Information technology industry, has persuaded IT companies such as Infosys, Tata Consultancy services, CTS, and Wipro to shift their focus to the European and Asian markets.

According to S.D. Shibulal, Chief Executive Officer of Infosys, the debt crisis in Europe will have a short term impact on the business and that they see opportunities in long term. Infosys has plans to double its revenue from the European market to 40 per cent towards the end of 2014 financial year. CTS expect to earn significant revenue from the region in the next 4 to 5 years. Both Infy and CTS are trying to scale up their operations in continental Europe by going for acquisitions.

Coburn says that CTS is investing significantly in building up their capabilities in France and Germany. He added that the market condition of Europe in 2012 is difficult to determine.

In addition to IT sector, there are many other sectors which expect gain from the crisis in Europe. According to Kiran Mazumdar, head of Biocon Ltd, a biotechnology company, the reducing returns from research and development activities has forced the European and US companies to offshore their R&D activities to India and China.

Analysts are of the view that no one is certain about the kind of impact that the crisis can have on the demand for capital goods.




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