January 23rd, 2008
Indian software services firms such as Infosys Technologies Ltd, Wipro Ltd and Satyam Computer Services Ltd are looking to partner with or acquire local firms in Germany in an effort to tap European market for offshore IT services which, apart from growing at a fast clip, is also emerging as a natural hedge against a slowdown in the US, which accounts for the bulk of their business.
According to software lobby group National Association of Software and Service Companies Nasscom, the US market accounted for 65 percent of the USD32 billion Rs1.27 trillion revenues Indian IT companies earned in 2006 to 07.
There is a need to have different strategy for the German market to overcome language and cultural issues, said Peter Heij, head, Continental Europe, Satyam Computer Services Ltd, which recently formed a partnership with Arvato Systems, the IT division of the Bertelsmann Group, to offer services and solutions to companies in Germany, Switzerland and Austria.
Heij estimates the size of the total outsourced IT market in Germany, the second largest after the UK in Europe, to be around GBP 35 billion or USD 50 billion. The German economy is dominated by small and medium sized enterprises SMEs. The majority of the SMEs are familyowned and need to address social, sometimes political issues, before they can outsource work to India.
Promoting offshoring among SMEs is often directly linked to taking jobs away to India, Heij said.
Satyam plans to target SMEs and companies with revenues lower than GBP 5 billion through its partnership with Arvato, it will sell directly to bigger firms.
Cornelia WelsMaug, a senior IT services analyst at research firm Ovum, said German companies are looking to increasingly offshore work in an effort to cut costs and cope with competition. There is also a shortage of skills, such as those required to implement business software such as that made by SAP AG.
Multinational software companies such as TSystems Enterprise Services GmbH, the captive unit of Deutsche Telekom, Siemens AG, IBM Corp., Hewlett Packard Co. , Accenture and EDS Corp. dominate the German market, but Indian vendors are now gaining increasing attention, WelsMaug said. However, Indian companies need to partner with local firms and hire local skills to overcome language and cultural issues before they can succeed in this market, she added.
V. Balakrishnan, chief financial officer of Infosys Technologies Ltd, said Germany, once considered a tough market, was changing slowly as companies there were willing to look at outsourcing.
Germany is on the radar of Infosys, which services clients such as Daimler AG in the country. In an earlier interview with Mint, Balakrishnan had said that that the company has been eyeing acquisitions of USD100 to 200 million range in Germany and France.
Another company looking at acquisitions in Europe is Sonata Software Ltd, which ended 2006 07 with revenues of USD 194 million, 20 percent of which came from the continent.
Last year, Sonata acquired a majority stake in TUI Infotech, the Hanoverbased IT outfit of TUI AG, a European tourism and shipping group.
Outsourcing is not yet a top agenda with German companies, but the awareness is catching up, said B. Ramaswamy, president and managing director, Sonata Software Ltd. Sonata is eyeing acquisitions in range of USD 50 to 100 million.
Entry Filed under: Why Outsource?