Europe: Indian Outsourcers' New Frontier

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That makes Europe the company's largest operating segment after North America. Europe's relative share of Tata's global revenue has doubled from a decade ago, and it is projected to increase further. In a report released last week by the consulting firm IDC, Tata ranked among the top 20 IT services providers in Europe, making it the first India-headquartered company to make the list.

"Europe represents an important strategic market to us and one that has been growing in importance over the years, much before the recent financial crisis," says Abhinav Kumar, a spokesman for Tata Consultancy Services, a division of parent company Tata. The company is currently embarking on a "localization drive" into Europe, offering clients local language services. In Germany, for instance, Tata has set up delivery centers in Dusseldorf and Waldorf, providing services entirely in German to the clients that need it. For France, Tata's centers in Luxembourg and Morocco offer services in French.

Tata is beginning to reap the rewards. According to Steve McCartney, head of Central Europe operations at Tata Consultancy Services, there has been a pickup in activity and interest in the past two to three months. He has closed outsourcing projects with a major bank as well as an automotive firm and telecom company in Germany in the last month alone. "The first quarter we wondered where [business] was heading, but now a good mix of new and existing clients are scaling up," says McCartney.

Tata also is expanding in Europe beyond outsourcing. Tata AutoComp Systems (TACO), an automotive components and system engineering segment, employs more than 300 in Germany in its European headquarters, manufacturing facility, and engineering center. TACO Germany's largest clients include Ford (F) and Opel.

Work Permits, Visa Applications Differ

Other outsourcing firms are looking to Continental Europe—and Asia—to offset slowing growth in the U.S. market. After setting up a development center in Germany in 2002, for example, Wipro has since expanded its presence to six German cities and has contracts with large German companies like the software firm SAP (SAP). Currently about 30% of the Bangalore-based company's revenues come from Europe.

Europe is also the fastest growing region for competitor Infosys, averaging 60% year-on-year growth over the last three years. Europe currently contributes nearly 25% of Infosys' revenue. Infosys does a mix of business in the region including consulting, software package implementation, and business process outsourcing.

"We are working with our customers to support local needs [and] provide them with a high level of consultancy through local hires and experts," says BG Srinivas, head of European operations for Infosys. "We see plenty of future opportunities [in Europe] in pharmaceuticals, specific sectors within manufacturing such as resources and aerospace, and with consumer packaged goods and financial-services clients."

While the trend of more growth for outsourcers in European markets is expected to continue, barriers remain. NASSCOM's Nivsarkar points out, for example, that the EU lacks a common work permit or visa application. This makes it complicated for non-EU citizens to move freely across borders on projects. These issues were also highlighted in a July report released by the Federation of Indian Chambers of Commerce on India-EU trade relations. Indian firms surveyed for that report say visa and consular issues were among the main impediments to expansion of their services to the EU.

The EU is hoping to change that. This year the European Commission passed a directive to bring a so-called blue card scheme to the EU. By 2011, all EU countries will be required to honor this common application for skilled workers to enter the country for up to two years. "If the blue card comes into being, it will significantly remove barriers and allow international companies to deploy the best talent for their clients," says Tata's Kumar.

Meanwhile, Indian outsourcing firms continue to quietly grow their presence in Europe. Outsourcing is still viewed as a political issue and one that European companies are loath to associate themselves with for fear of employee and union backlash. As a result, "there has been a wall of silence on outsourcing in Germany," says Ulrich Bäumer, a Cologne-based partner with the global law firm Osborne Clarke who also acts as a liaison between NASSCOM and BITKOM. Outsourcing can be "invisible, and that's the beauty of it," Bäumer says. "No one knows where [the work] is done; it could be in Delhi, Mumbai, or Karlsburg."

Herbst is a reporter for BusinessWeek in New York.

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