With their relationship with America going cold, India’s information technology (IT) giants are warming up to Europe.
So far, North American clients have comprised over two-thirds of the business for Indian IT behemoths, with Europe accounting for just over 20%. However, with growth in the US stalling and the market nearing saturation, all eyes are shifting across the Atlantic. And although analysts expected delays in IT spending and weaker revenues in the aftermath of Brexit, there is much optimism for the longer-term.
Already, two of India’s biggest IT companies—Tata Consultancy Services (TCS) and Infosys—are seeing Europe deliver strong numbers. For the first quarter of the 2018 financial year, business in the region grew by 5.9% (excluding the UK, where growth was 0.7%) and 3.1% for TCS and Infosys, respectively, on a constant currency basis. Revenue growth in North America for the same period stood at 1.7% for TCS, while Infosys did worse at 1.3%.
“Europe’s growth has been broad-based across all sectors and actually reasonably spread out geographically throughout Europe as well,” Mohit Joshi, president and head of the banking, financial services & insurance (BFSI), healthcare, and life sciences divisions at Infosys, said on an investors’ call on July 14. ”If you recollect, about a year ago people had concerns about what impact Brexit, for instance, would have on the European technology spending on our revenues. We have not seen that impact so far.”
TCS, too, is fairly sanguine about the impact of Brexit. In the immediate aftermath of the UK’s decision to leave the European Union (EU), TCS’s then chief executive officer N Chandrasekaran anticipated a slowdown in business. “Maybe companies will delay their investments in technologies for a while, but they will continue to invest in technology and into the digital space,” he said in July last year. But the latest numbers show that business is growing, and the company is ramping up operations and hiring in Europe.
Infosys is also sniffing for new clients across the continent, from the Nordic countries to southern Europe, and hiring locally. In April this year, the company expanded its footprint in eastern Europe by setting up its first office in Croatia. “We do not have the same degree of saturation as we do in the US market, for instance,” Joshi explained, speaking of the opportunity in the old continent.
However, there are immigration-related challenges in Europe, too.
Although there is a “Blue Card“ system in the EU that allows workers to live and work freely in the Schengen area, comprising 28 states, most countries still stick to their own national migration schemes. And without a unified visa scheme, worker flexibility for a non-EU national is limited. With the UK tightening its visa laws, Indian workers may find it hard to procure a work permit at all.
With Brexit proceedings expected to stretch up to 2022, there may be more curveballs in store for India’s IT giants.