Europe plans its own competitive software sector

The European Commission (EC) plans to create a competitive software services industry of its own.

Towards this, a French firm. Pierre Audoin Consultants, appointed by the EC to lead a consortium “to help define the future of the software industry in Europe.” It has identified cloud computing, mobility, open source, offshoring and online advertising as game-changing trends in the preliminary results of the project, released on November 25.
The final results of the project will be released by the EC at Brussels in June 2010.

For some time now, Indian IT firms such as TCS, Infosys andHCL have been trying to cut their dependence on people, which makes up about 60% of the costs. These firms have been focusing on providing services in remote infrastructure management, cloud computing, pay-per-use mode of technology usage, etc, which allow revenue generation without a corresponding increase in the number of support staff. It may be a godsend for these firms that these are the very areas the EU is looking at now. 

Last fiscal, Indian IT services firms exported about $14 billion worth of software and software services to Europe, representing a little under 30% of the total exports of $47 billion.

Pramod Bhasin, chief of Nasscom, the IT body and Genpact, the BPO major, said he was unaware of it, but bets such a move would benefit India. “I am aware that there are a few associations on IT services in individual countries in Europe. I do not know whether European Commission is setting up one. I believe this is all about doing business effectively. See, in Europe they have constraints of people and other resources. A European IT services industry will throw opportunities for us in India and we must grab it,” said Bhasin.

Martyn Hart, chairman of UK’s National Outsourcing Association could not confirm the development either. “Things associated with IT industry in Europe usually take us into confidence. But I have not heard about this one,” said Hart.

He, however, said that a ‘competitive’ software services industry will be possible only with low wage costs, which was very unlikely in Europe, and would benefit countries like India.

“It looks a bit difficult for the moment. In Europe, firms have to adhere to some social laws that stipulate certain wage structure. Alternatively then, firms will be looking at sourcing people from places like India since most big European countries have a population of just about 8-10 million. Besides, India will have the advantage of providing so many people who are needed in the industry,” said Hart.

Both Hart and Bhasin feel it will hasten the process of acquisition of some local firms by Indian IT services firms. “We have good and strong balance sheets. Our corporate governance framework is strong. This will help us look at acquisitions in Europe,” said Bhasin.

Among recent acquisitions of European IT firms by Indian IT service firms are HCL Technology’s acquisition of Axon and Cognizant’s acquisition of T-Systems, a division of T-Mobile.

IT, telecom and audiovisual industries together make up around 8% of the European Union’s GDP and employ about 13 million people. Information and communication technologies, however, account for 40% of the EU’s productivity growth.