By taking advantage of its ability to deliver services offshore from low-cost India, Infosys Technologies can offer IT services to European customers at 30 to 40 percent lower cost than they would get in Europe, according to S. Gopalakrishnan, the company's president and chief operating officer. Gopalakrishnan discussed the company's strategy for the European market in an interview, an edited version of which follows.
Do you see Europe as a top priority market?
Europe is probably the number-one priority for us. We want to balance our portfolio, which is now tilted towards the U.S., so we are investing proactively in Europe and Asia Pacific, and out of that Europe seems to be yielding results faster than Asia Pacific. Europe as a region is also the second-largest market next to the U.S. It also seems to be opening up for offshore and global sourcing in the last two years. It is far more receptive, and you have large deals happening in Europe, which in turn has given us confidence that this may be the right time to focus on this market.
Europe is also now willing to accept that these deals can be structured differently. In traditional outsourcing deals, you would take over a complete IT department and run it. What companies like Infosys have been proposing is that not all employees need to be brought in, but you need to do a selective transfer. It is better for both the clients and the vendors, and European customers are now willing to accept that.
In Europe, the U.K. is the biggest market for us because it is English speaking. France, Germany, Belgium, Switzerland, and the Nordic countries are the other markets we have addressed. In the future, we need to look at markets in southern Europe like Italy, Spain, and Portugal. We will also expand in Germany and France where the potential is fairly large, but we need to make more investments in these markets, because they require you to hire local people who know the language and the culture. If you look at Germany, for example, the markets are in the financial services and manufacturing industries, and specially in manufacturing, it is very difficult to interact with customers without knowledge of German. In contrast, in the Nordic countries and Switzerland you can make do with English, because companies there have made English the common language for IT.
There is some difference in the type of work that we do in Europe versus the rest of the world. Although Europe accounts for 25 percent of our revenues, on the BPO (business process outsourcing) side, 50 percent of our revenues comes from Europe, and most of that is from the U.K., because language is very, very important when it comes to BPO.
Do you see an opportunity for Indian companies to offer BPO services in continental Europe in languages other than English?
It is challenging to offer BPO services in other languages, but we do it as part of an overall services strategy. We do it for example for a client for whom we are providing IT services.
Is it important to have near-shore capabilities in Europe both for BPO and IT services?
Near-shore capabilities are required because of the need for local language capabilities. We have a center at Brno (in the Czech Republic) and we have doubled the capacity there in the last year. We are supporting clients in 11 European languages from Brno, and it is mainly in BPO. We also have a disaster recovery center in Mauritius. Since Mauritius is French-speaking, we are supporting some French clients from Mauritius. We have also opened a number of offices across Europe, and these will get larger as we look at larger projects and more consulting assignments.
Does building more expensive on-shore and near-shore capabilities change the economics of the business?
The economics of the business will get changed only if you change the model. If the model is our global delivery model where 30 percent of the work gets done near the customer, and 70 percent of the work gets done in a location like India, then the economics does not change. Because if we are spending more, we are able to get higher (billing) rates as well.