So far, India's second-biggest software exporter has stayed away from addressing the UK's government outsourcing market. In contrast, rivals TCS and Wipro have established subsidiaries and won several deals, including from the country's pension management authority and tax department. "We are studying the market. But there are contractual and liability challenges," said BG Srinivas, Senior Vice-President , manufacturing , product engineering, product lifecycle and engineering solutions businesses.
Infosys recently announced a new subsidiary in the US to focus exclusively on public sector projects. Srinivas, however, ruled out a separate subsidiary for this business in the UK. Several UK government departments have already started sending IT jobs overseas to cut cost of operations and cope with a local shortage of skills. For instance, the UK's tax authority, HM Revenue & Customs , is beginning an offshore outsourcing pilot in India with technology vendor Capgemini .
The 18-24 month pilot, being launched with the European vendor, is part of HMRC's 5-year , $84-million outsourcing contract for tracking the agency's imports and exports. Among Indian vendors, TCS has won sizeable projects from the UK public sector including the £600 million contract from the UK Personal Accounts Delivery Authority. The combined IT services market in the UK and Ireland is estimated to grow to over £32 billion by 2013, says a report by advisory firm Ovum , of which the public sector will account for a third.
The public sector market , however, is seen as getting more complicated as the government unveils greater spending cuts to tackle budget deficit. The Indian IT industry , which derives nearly 18% of its business from the UK, started gaining more government outsourcing business after Tata Consultancy Services won a contract worth over $600 million to administer the country's new national pension scheme earlier this year.
The UK government has announced measures like putting a cap on IT projects over £100 million, protecting its in-house IT capabilities and greater scrutiny on projects being awarded. "The UK government has articulated that outsourcing will continue but they will be cost conscious," Srinivas said. Europe accounts for over 20% of Infosys' $6-billion revenues, of which over 50% comes from the UK.
Infosys has also identified France, Germany, Switzerland, Netherlands , Belgium and Poland as its core markets in Europe and the company has seen revenue from these regions grow faster than the UK in the past two years. UK's contribution to revenue has come down from over 60% two years ago to about 50%.
France and Germany have traditionally been slow to outsource , but clients are opening up to the opportunity. "Structural challenges are still there, companies have large inbuilt IT capabilities that they cannot do away with. But they are outsourcing new projects. It is a medium-to-long term opportunity ," Srinivas said. Europe has been slow to bounce back from the global downturn compared to the US. Worries around the euro, large deficits and the impact of the Middle-East crisis still remain. Srinivas said the demand for IT services was slow but steady.