Tata Consultancy Services (TCS), the top India-based offshore IT and Business Process Outsourcing (BPO) service provider, is in the final stages of negotiations with Deutsche Bank for an outsourcing deal estimated at around $1 billion, suggest media reports. If clinched, this will be the biggest outsourcing deal won by an offshore-centric IT-services company.

TCS had signed a deal valued at $848 million with the U.K.-based Pearl Group in October 2005. In January this year, another India-based company HCL Technologies, won a $330 million IT contract from U.K.-based specialist electric retailer, DSC International. New Delhi-based HCL will take over the entire IT organization of DSC, according to the terms of the contract.

Of course, the much-publicized ABN Amro multisourcing contract totaling $2.2 billion had a fair share of the total contract going to the offshore vendors. While TCS bagged business worth $260 million, Infosys managed to grab contracts worth $140 million. Tier 2 Indian service provider, Patni Computer Systems also managed to get a slice of the deal.

What is common to all these deals? Yes, these deals (or significant parts of them) went to offshore vendors. But another commonality is that European companies awarded all these deals.

This directly challenges the myth that Europe has been slow to offshore. For major Indian vendors, most of their big deals of late are coming from Europe. Despite that, Europe is perceived to be slow in offshoring.

Why?

There are several reasons for this perception.

Fisrt, Europe has been behind North America in outsourcing per se. So it is not unusual that it has also lagged behind in offshoring in absolute terms.

Second, most of the major offshoring deals have been signed predominantly by the companies in the U.K., which have a more mature approach, and for which offshoring to the most preferred offshore destination — India is far easier, thanks to the common business language: English. Two of the biggest outsourcing markets in Europe — France and Germany — are yet to wake up to the offshore opportunities, partly because of the stringent labor laws and partly because of lack of a large and mature offshore location that also speaks their language. Interestingly, emerging markets like Nordic countries and The Netherlands have no such inhibition, and are looking at offshoring with a much more open mind. But the fact that two of the three big markets do not even consider offshoring does contribute to the perception that Europe has been slow to offshore.

Third, all the offshoring big deals cited above notwithstanding, the total number of large deals in Europe in the private sector is still fairly limited. The reason they get highlighted is that a significant percentage of that goes to the offshore vendors, rather than the traditional American Big Six. While many American companies still prefer North American vendors for large contracts because of the long association, Europeans wanting to do offshoring do not have that luxury, as many of the European outsourcing service providers have been slow to build offshore capability.

This is reflected in the geographical revenue distribution of India-based providers. TCS has declared that from this quarter on, it is going to see rising revenues from Europe. Europe contributed 24% of revenues, up 2% from the last quarter. Even the fairly more U.S-centric Infosys, is seeing steady growth in revenues from Europe. In financial year ‘03, Europe accounted for 17.7% of the company’s total revenues. It climbed to 19.2% in financial year ‘04 and 22.3% in financial year ‘05.

Smaller players have their share, too. Patni Computer Systems also won a one-year multiservices telecom contract from U.K.’s Carphone Warehouse, worth $10 million.

And it is not restricted to only IT. India-based pure play BPO company, Genpact, the erstwhile GE subsidiary, also announced a $60 million contract with German tech group, Linde, to provide finance and accounting BPO services. Interestingly, Genpact bagged one of its first non-GE clients from Europe, when it bagged GlaxoSmithKline U.K., for providing finance and accounting services. It is only recently that Genpact also added the pharma major’s U.S. operations as a client.

In fact, Europe has already done some significant offshoring in BPO. Most of the large U.K. financial-services companies including Lloyds TSB, Aviva, AXA and Prudential U.K. have done significant BPO. In other areas like telecom and utilities too, major companies have offshored to India for quite some time. Hutchison 3, BT, COLT and OneTel have offshored significant work to India.

Europe, contrary to popular belief, is catching up in offshoring. While BPO offshoring is fairly mature, IT is slowly, but surely following.