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Europe's Covid wave big risk for Indian IT

Western Europe, which contributes 25% of revenue to Indian IT firms, is back in lockdown mode; As part of diversifying revenue mix, most Indian IT services companies are aggressively expanding their base in many European countries and are forced to slowdown their investment plans

Europe’s Covid wave big risk for Indian IT
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Europe’s Covid wave big risk for Indian IT

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Return of Covid Spectre

- Austria, Netherlands, Italy, Croatia have already imposed full to partial lockdowns

- Germany is mulling over it

- Europe is home to marquee MNCs including Royal Dutch Shell, Vitol Group, ING, Volkswagen

- Infosys, TCS, Wipro and HCL Tech setting up new delivery centres

- IT majors acquiring firms and entering into strategic relationships to increase their footprint in Europe

There's an increasing willingness among European clients in outsourcing to Indian IT cos. Europe is an emerging market and any disruption doesn't augur well for IT vendors, said an outsourcing advisor

Bengaluru: Rising Covid infection and subsequent restrictions imposed in many countries across Europe is fast emerging as a risk factor for the Indian IT companies during this quarter. Sources in the know said though the impact has not been felt yet in terms of travel restrictions or delay in decision making by clients, they cautioned that lingering infections risks would certainly lead to these outcomes.

In the last one month, Western Europe has seen resurgence in the Corona virus infections with increasing hospitalisation. Countries like Austria, Netherlands, Italy, Croatia have already imposed partial lockdowns, while Germany is mulling to take such steps.

Western Europe is one of the critical market for Indian IT services provides as the region houses many marquee multinational corporations including Royal Dutch Shell, Vitol Group, ING, Volkswagen and many more. Indian IT firms have strong relationship with companies in this region.

"Though there is no indication of any disruption yet, there is a likelihood of delay in decision making by clients if the situation lingers," said a company official.

Europe contributes around 20-25 percent of revenue to most Indian IT firms, while US generate more than 55 per cent of the top line for these companies.

To diversify the revenue mix, most IT services companies are aggressively expanding their base in many European countries.

Companies like Infosys, TCS, Wipro and HCL Technologies are setting up new delivery centres, acquiring firms and entering into strategic relationships to increase their footprint in this region.

In November 2020, TCS acquired Postbank Systems AG from Deutsche Bank in a deal that involved the takeover of 1,500 employees based in Germany. In the same month, the company acquired the IT assets of Pramerica Systems Ireland from insurance firm Prudential Financial Plc.

Similarly, Infosys has won the largest deal ever in its history from German automotive major

Daimler that is estimated to be at $3.2 billion, spread over eight years. Under the new CEO, Wipro has also renewed its focus on the European region. It has appointed Pierre Bruno as Chief Executive Officer of Europe in March this year. The company has sealed a deal worth $700 million with Germany's Metro AG in December 2020. In the last two quarters, the growth numbers from European region have also started to improve. However, rising infections may pose a threat to this nascent recovery.

"There is an increasing willingness among European clients to outsource and Indian IT companies are the principal beneficiaries of this offshoring move. In that way, Europe is an emerging market and any disruption doesn't augur well for IT vendors," said an outsourcing advisor.

Debasis Mohapatra
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