American providers first went to Mexico and Canada, and then to India, the Philippines, China, Malaysia, Argentina, Brazil … because their customers wanted it. European providers, on the other hand, have had customers who have themselves been slow to move out of their regions. Demand for specific language skills have driven companies toward setting up BPO centers in Eastern Europe and North Africa, though the top of mind players in countries like Poland, Hungary and the Czech Republic remain the Americans (IBM, EDS), Indians (Zensar, HCL) and regional Russian and Central European providers (Exigen Services, EPAM Systems, IBA Group, Luxoft).
Moreover, inflexible labor laws and trade unions in Europe make any outsourcing out of the European Union tough. “Europe is conservative in terms of personnel policies and different business practices along with imperatives like culture and language,” says John Willmott, CEO, NelsonHall, a European research and consultancy firm specializing in BPO analysis.
Another reason for the European providers falling behind in the race is that unlike the Americans who work entirely on a profit-cost relationship, Europeans’ business transactions get influenced by relationships and cultural affinities. “Companies like Atos Origin are still getting strong relationship-based deals,” says Morgan Chambers’ Vedala. “Europe is a closed community.” But, is this a long-term strategy solution?
This is more so in the case of contracts by the public sector, with the majority of such deals going to the European players. One of the biggest global deals in July, for instance, was a public sector deal — the Italian Ministry for Agriculture, Food and Forestry Policies gave out a $1.7 billion, nine year, application management and IT-infrastructure deal to Almaviva, an Italian provider.
Tigers in their Own Backyards?
These reasons inhibit non Europeans from doing business in Europe, and create space for local players to continue enjoy market share. It is only in the U.K., Benelux and Nordics that international IT companies can cash in on their English-speaking skills. In fact, “most international players have struggled to have a strong capability in places like Germany. Germans are more comfortable outsourcing to Eastern Europe than to Asian vendors,” says Willmott, “Similarly, the French are more at ease with French-speaking companies from North African areas than with the Indians.” Logica is one company that is now strengthening its delivery centers in nearshore locations such as the Czech Republic, Slovakia, Morocco and Estonia.
“It is very difficult for American and Indian companies to beat the cultural divide in Europe,” says Rishi Sahai, Director, IndusView, an IT-advisory firm.
