Europe to lead future outsourcing wave in India

After the US multinationals its now the turn of European companies to future the outsourcing wave in India. With a favorable climate and driver factors in favor India there could be an estimated 8 – 10 billion Euros of addressable market for European companies’ to do Research and Development (R& D) operations, says a new study by Zinnov.

The Zinnov study “European software product market – An opportunity unexplored” says though off shoring from Europe began in the early 90s, the momentum started picking up only in the last four years and the number of software product development captive in India has doubled. Further companies are realigning their global strategies in wake of the recent US meltdown and Europe continues to hold strong growth prospects for India and other countries in the region.

With increased interaction between IT communities of India and Europe, the ecosystem has rapidly changed. Drivers for outsourcing like the available talent pool in India, increasing It spend, cost arbitrage, the innovative capabilities of India and the current exchange rate would encouraging European companies to look for outsourcing to India, said Chandramouli, Director – Advisory Services, Zinnov Management Consulting while adding that the newly amended TUPE law in UK had made it off shoring much easier for companies that ever before.

However, the European companies would expect a tighter control over their offshore operations and would prefer to go for captive centers, Chandramouli noted.

While the North America contributes about 42 percent to the global R&D spend, European market has a contribution of 35 percent followed by Asia at 22 percent and rest of the world at one percent.

The study points out that out of the top 100 European companies, 18 companies already have 23 captive centers in India with Bangalore accounting for 50 percent of the companies and one third of the captives. The National Capital Region (NCR) and Chennai are the other preferred locations for European Captive centers in India.

Though being a highly diverse continent, Europe has language and cultural compatibility issues from country to country, which results in limited options for off shoring work. This further coupled with the talent available in the nearshoring destinations did not have positive results for outsourcing and nearshoring was preferred because of the comfort for proximity and ease of communication. One more factor that favored nearshoring activities was the close cultural ties of the Central and Eastern European counties with markets of Western Europe.