On Coder Ave, Germany, France, E Europe excite

When it comes to software work, Germany and France are all about local code writers.

That’s beginning to change, says Aniruddha Bhosale, analyst with Deutsche Bank.

In Germany, the second-largest spender on IT in the continent behind the UK, he said, companies have started to offshore information technology (IT) services, realising it can help cut costs in difficult times.

In France, domestic companies have a lion’s share — about 80% — of software services work, led by the likes of Capgemini. Of the rest, 15% is nearshored and only 5% offshored.

Bhosale spoke to more than 50 information technology decision makers in Europe and believes the potential for Indian software companies in the continent is big.

Indian software companies are also focusing more on Germany and France since the IT pie in those geographies is estimated to be twice as large as the UK.

To cater to them, companies plan to change their standard ‘global delivery model’ onsite-offshore ratio of 30:70, said analysts.
Infosys, for instance, seeks to increase

local headcount with a 20:20:60 local, onsite and offshore split to offset not just political backlash, but also for practical servicing reasons since language is a huge barrier.

Indian companies also plan to grow inorganically and are looking to acquire companies in continental Europe.    

Ankita Somani, analyst with Angel Broking, points out that IT budgets are expected to be flat to marginally negative going forward, since only few clients have grown their spending outlook.
“But  due to several countries in Europe slowly opening up their offshoring policy ? they look at outsourcing as an ideal way to cut costs — there is a new opportunity coming up for Indian coders,” Somani said.

In 2011, top-tier information technology (IT) companies grew their European revenues between 23% and 40%, according to a Deutsche Bank report, despite the region getting increasingly impacted by the ongoing sovereign debt crisis.
In 2012, growth is expected to more than halve, hovering around the 15% mark, said Somani.

But Joe Squeri, CIO of Barclays Capital, in a call with colleagues last week on IT budget forecasts for this year, said there will continue to be a greater shift towards offshoring globally to take advantage of labour arbitrage with low-cost locations such as India and eastern Europe.

However, one impact of slower decision-making and cautious discretionary spends seen last year is smaller projects going to newer players, said analysts.

Angel’s Somani foresee as much as a 30% churn in contract renewals this year.

A recent survey by TPI, which is the intermediary for a majority of global outsourcing deals, vouchers the trend: the survey showed contracts in the smallest value band, i.e., deals in the range of $25 million to $99 million, increased substantially in 2011.