Indian IT service providers are securing more and more high-profile outsourcing deals in the Nordics, involving the likes of Nokia, DNB and ABB. And with companies such as HCL Technologies and Wipro announcing further investments in the region, their presence is expected to grow.
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Gartner research analyst Mika Rajamäki said: “Based on 2013 figures, Indian IT suppliers have been growing faster in the Nordic market than the traditional service providers. If the annual growth of the traditional suppliers has been 2-3%, Indian companies have been growing by almost 20% a year.”
Indian IT companies have not yet hit the Nordics' top 10 IT suppliers list, but this is likely to change. Because Indian service providers focus mainly on the biggest fish in the manufacturing, finance and telecoms industries, one major deal can boost their market share significantly.
“Sweden has the largest market, but Indian companies seem to have the highest market share in Finland, around 4%,” said Rajamäki. “In Denmark, Sweden and Norway, their market share is around 1%, but these figures are from 2013 and there were some major deals last year, so the figures have definitely grown. Average market share for Indian companies in the Nordics is probably around 4-5%, closer to 5%, and in Finland it will grow to 6-7% this year.”
Some Indian IT suppliers have been operating in the Nordics since the 1990s, but the real challenge has begun over the past five years. Their aim is to shake up a static market dominated by local and multinational suppliers such as Tieto, Evry, KMD, IBM and Accenture.
Increasing investments in the region include HCL’s seven-year deal with Norway's DNB bank, worth $400m. While most services are still offshore, companies such as Tata Consultancy Services (TCS), HCL Technologies, Wipro, Infosys and Tech Mahindra have several offices in Nordic countries and a growing number of local delivery centres.
Johan Hallberg, research manager at IDC Nordic, said: “In the past, Indian IT suppliers were doing lower-level outsourcing and were often invited as subcontractors by medium-size Nordic players. But they have learnt that they can’t sell on price alone. They understand that they need more than a sales force in the Nordics and have started to market themselves in a different way.”
The Nordic appeal
But why the Nordics? Hallberg says the Nordic IT services market has been growing more quickly than in continental Europe, especially in Sweden, which has not been hit as hard by the economic crisis as many other European countries. The Nordics also have a relatively mature market and a large public sector with a major IT budget, he adds.
According to IDC figures, the IT services market in the Nordics was worth $24.4bn in 2014. Outsourcing is worth $12.6bn of that and it remains the main area where Indian suppliers operate.
While it is an attractive market, a key fact about the Nordics is that they still value local presence. A 2013 Ernst and Young study found that most outsourced services remained ‘onshore’ (in the same location or country). This is especially true of Sweden, where 87% of outsourced services were located onshore. Denmark was at the other end of the spectrum with 59% of services onshore, while Finland (74%) and Norway (80%) sat in the middle.
“The Indian suppliers have understood that they need to have local sales forces, local consultants and local datacentres,” said Hallberg. “It has become even more important for Nordic services companies to show their understanding of local business culture, laws and rules. Nordic suppliers have also started to specialise to meet Indian competition.”
The importance of a local presence is echoed by TCS, the biggest Indian IT supplier in the Nordics. Amit Bajaj, the company's head of North Europe, says TCS has more than doubled the size of its operation in the Nordics since 2010 and has increased local hiring.
“We see the Nordic countries as a very interesting market,” said Bajaj. “This region hosts a number of very innovative and internationally competitive firms – just the kind that are a good match for us.”
Shaking up customer service
Gone are the days when the success of Indian IT suppliers could be measured only in cost savings. In recent years, Indian service providers have shown up well in customer satisfaction surveys. In Whitelane Research’s 2014 Nordic IT Outsourcing Study, TCS led the pack with 83% for contract satisfaction, with Infosys close behind at 79%, both well above the average of 71%. Three out of the top 10 companies in the survey were Indian.
IDC Nordic's Hallberg added: “Many companies in the Nordics are in their third generation of outsourcing and are often mature in their requests. This has led to services companies needing to be even better in their customer understanding and to be closer to customers.
“The local revenue of some Indian suppliers has grown by more than 30% year-on-year. They are usually in the final selection phase in larger deals, which was not the case just a couple of years ago.”
Gartner's Rajamäki pointed out that Indian companies can be very agile in their operations and act like small companies.
“Indians are slightly more daring in taking risks [than traditional players] and share the risk of their customers,” he said. “They are also efficient in the transition phase. Most deals today are taken over from competitors, and completely new deals are a rarity. What Indian suppliers do very well is to rapidly take over a customer and invest in the relationship.”
The deals Indian companies are winning are not just focused on one area, but range from help desks and IT infrastructure to application development and modernisation of legacy systems.
Breaking down barriers
Hallberg and Rajamäki both believe competition in the Nordic market can only grow. Indian IT suppliers are starting to gain a foothold in other IT services, such as project services. They are also starting to challenge traditional players for public sector deals as language barriers can be overcome by hiring locally, forming local partnerships or even acquisitions.
“Traditional Nordic and multinational players will increase offshoring where it is viable, such as cloud services, while Indian suppliers have come to the Nordics to stay and will continue to build their presence here,” says Rajamäki.
At the same time, the IT services market is undergoing a wider transformation. Although Bajaj cannot comment on TCS’s future plans in the Nordics, he highlights the internet of things, cloud services, digitisation and BYOD trends as drivers of change in the industry.
“The market is in a state of dramatic and constant change,” says Bajaj. “It has been predicted that in 10 years’ time, 40% of the current Fortune 500 companies will no longer exist.
“In this changing environment, organisations are fighting to get a lead on the digital re-imagining of their business, to simplify their processes and systems and to secure appropriate governance in terms of security, risk management and compliance. As Gartner pointed out, global IT spend will continue to grow at over 3% for this year.”
The changing Nordic market presents both an opportunity and a challenge for services providers, but one thing is certain: competition is increasing, and so are the rewards.