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With
the US slowdown, Indian software firms are making a beeline
for Europe. But unlike the US, European markets are complex,
with wide differences in language and culture. Yet, we must
succeed in Europe if India has to become an IT superpower.
Rajneesh De and Stanley Glancy profile individual
European nations to give you an idea of what to expect there
The
phenomenal rise of India Software Inc. over the last one decade
has been largely dependent on the massive growth of software
services exports to the US. However, the economic slowdown
in the US in 2001, coupled with Uncle Sam’s vulnerabilities
on the security front, are gradually making Indian software
firms look closely at the other side of the Atlantic. It also
helps that the slowdown in the US economy coincides with an
increasingly open-door regime in Europe.
Indian software houses already have a modest presence in France,
the Netherlands, Germany and the more IT-friendly Scandinavian
countries. India’s top companies have in the past year
opened development centres in the UK. In August, TCS opened
a centre in Hungary, a bridgehead for its continental European
ambitions. The Hungary centre will draw on a large pool of
relatively affordable German and English-speaking software
engineers and will act as a point of entry for TCS’ foray
into the European union. Opportunities should blossom when
Hungary, which beat Poland and some expensive west European
countries in TCS’ plans, joins the European trading bloc.
The UK is the dominant European market for Indian software
exports, largely for historical reasons. In signs that the
strong bonds will only get stronger, TCS is close to finalising
a deal for its biggest UK development centre in Wales. TCS
CEO S. Ramadorai says, “We are not about to send in programmers
by the dozen as we did in the US. You cannot say the US model
will work in Europe.”
One reason for this is that Europe is a collection of smaller
markets trying to become one single market. Indian companies
will need to devise different strategies across the continent.
In the past 18 months, Italy, Ireland and Germany have appealed
for Indian techies by relaxing visa rules. However, Germans
famously favour long-term business relationships rather than
short, one-off contracts that typified US companies’
early dealings with India IT. This may hit Indian efforts
in Germany.
The challenge, therefore, is to convince inward looking and
less globalised European companies of the merits of the Indian
outsourcing model. Analysts believe the demand from European
customers is likely to be as strong for traditional services
such as application and network development as for “domain
knowledge” in areas such as financial services and manufacturing.
Persuasion is the key. Says Ramadorai, “The European
mindset, say, towards procurement, is different. But as they
watch the rest of the world going to India, people have woken
up to some extent.” Part of Indian companies’ armoury
would be the argument that their so-called value proposition
is based on more than labour arbitrage. “What we are
putting on the table is the intellectual property argument
a capacity to produce technology solutions for businesses
which are crucial for European companies that want to gain
a global cost base,” says Nasscom chairman Phiroze Vandrevala.
Indian companies eyeing Europe will be under greater pressure
from the outset to build substantial presence on the ground.
This means a higher proportion of the labour force will be
local, supported by a strong marketing unit. The winners in
Europe will probably be those with strong brands, scale and
delivery models that have weathered Y2K and the dot com boom.
Britain
The UK continues to be the first choice country for global
investment in Europe with nearly $400 billion last year, nearly
double that of its closest competitor Germany. In fact, UK
is the second largest recipient of overseas direct investment
globally after the US. It holds 24 percent of all investment
in Europe and nearly 8 percent worldwide. Last year, it attracted
869 new projects compared to 757 the previous year, an increase
of 15 percent, creating more than 71,000 jobs. According to
the latest A T Kearney investor survey, the UK holds fourth
position in overall investor attractiveness behind the US,
China and Brazil (Incidentally, India stands sixth in this
list.). And even Britain not adopting the Euro would not have
much of an impact on this investment. CEOs interviewed in
the survey indicated that despite the introduction of the
Euro, they were as likely to increase their investments in
Europe at large as they were in Euro zone countries.
But why did the UK emerge as a key territory for IT investment?
Because British businesses have understood and embraced the
fact that investment in technology spending is a crucial issue
of competitive importance, feels Nigel Griffith, Minister
for Small Business, Dept. of Trade & Industry, UK . “They
understand that IT is the enabling technology of just about
all other developments in all other sectors. The appropriate
application of IT can have a transformative effect on business
processes and productivity,” adds Griffith.
Growth in the IT market in Britain has consistently outperformed
European average growth rates. The European software and computer
services sector currently accounts for nearly a quarter of
the world market. And it is growing faster than the US and
Japan. It grew by 10.8 percent to $125 billion in 2000. It
is estimated that the market will be worth $210 billion by
2004. This is impressive growth by any standards. But within
the region, UK’s performance shines out. UK experienced
9.5 percent growth in 2000 and it is predicted that growth
will average 11 percent from 2001 to 2004. Britain now spends
the fourth largest proportion of GDP on IT in the world and
is fast closing in on Germany with its population of 80 million
people as the largest market for IT in Europe. These points
underline the fact that the UK IT sector is strong, diverse
and dynamic.
Says British trade and industry secretary Patricia Hewitt,
“The nature of UK investment projects is changing to
favour high-quality, value-added and technology-driven projects
in the IT, telecom, biotech and R&D sectors.” IT
and Internet services accounted for 182 of the investment
projects, and another 141 involved computer software. The
electronics industry figured in 83 projects, another 49 were
in the telecom industry, and 29 others were in the call centre
space. Britain’s track record in attracting inward investment
into the sector is enviable. Microsoft’s first overseas
R&D facility outside the US is in Britain. And IBM has
20,000 employees in Britain engaged in manufacturing, service
provision and R&D.
Among the 869 new investment projects, 21 were from Indian
companies creating 378 new jobs. Not surprising considering
India’s three-century-old history of engagement with
the British. Approximately 60 percent of Indian IT investment
in Europe during the last year was on Her Majesty’s shores.
Around 125 Indian companies involved in the ICT and software
sectors now have a presence in the UK. Leading the pack are
all the big names like Wipro, Infosys, TCS, Mastek, PCS and
Kale Consultants among others.
But cultural legacy apart, what are the factors driving Indian
IT companies to invest in the UK? Indian investors say they
are attracted to UK’s pro-business, low-tax environment
and its position as the gateway to the European market. Besides,
Britain’s position as Europe’s leading e-commerce
market, its wealth of R&D facilities and world-leading
telecom infrastructure are added motivations. The English
language and the position of London as Europe’s business
capital are further drivers behind their investment decisions.
There are enough statistics available to support these claims.
UK’s corporate tax rates at 30 percent is one of the
lowest among the major EU economies, much below Germany at
42.2 percent, Belgium at 39 percent, Italy at 37 percent and
France at 33.3 percent among others. The rate for smaller
companies is 20 percent and a 10 percent rate is applied to
companies with taxable profits up to 10,000 pounds, with marginal
relief for profits between 10,000 and 50,000 pounds. In terms
of infrastructure, Britain has one of the most deregulated
telecom structures. UK was the first EU country to deregulate
and privatise its telecom sector. Presently, there are over
250 competing companies resulting in UK being one of the most
cost-effective locations for telecom services in Europe and
providing a vast support infrastructure that ensures excellent
service support to IT businesses.
There is also the perceived vision of Britain as a global
leader in the digital world. The UK was the first country
in the world to have digital TV available on three competing
platforms: satellite, cable and terrestrial mode. It currently
leads the world in the deployment of digital TV. It also leads
Europe and is ahead of the US in 3G mobile technology. The
UK is now the cheapest place in the world for off-peak Internet
access and peak time rates below the OECD average. 1.7 million
businesses in the UK are already connected to the Internet,
while 90 percent of employees have Web access at work. The
government aims to have 1.5 million SMEs trading online by
2005. Already 42 percent of government services are online,
and this figure is set to rise to 73 percent by end of 2002.
The gateway to the European market is an added incentive for
Indian IT companies. Britain is a springboard for Indian IT
or other industries to market their wares in other European
countries, which face an acute shortage of skilled workers.
Geographically, it is centrally located to be a gateway to
developed countries like France, Germany, Spain, Italy, etc.
The experiences of Wipro Technologies, TCS and Sankhya Infotech
are a pointer in this regard. Wipro opened its first European
development centre in Reading in 2001 while TCS has one at
Manchester. Says Sudip Nandy, VP, European Sales and Marketing,
Wipro Technologies, “This centre enables us to respond
quicker and provide faster delivery solutions to our key customers
in the UK and the rest of Europe.” Adds N Sridhar, CEO,
Sankhya Infotech, who provides software solutions for the
transportation industry, “UK has an 18 billion pound
market in aviation and the aerospace industry, and the IT
in transportation sector in Europe has a potential of over
12 billion pounds a year.”
The UK is Europe’s largest e-commerce market, worth over
2 billion pounds annually and growing rapidly. London has
also been voted as Europe’s best-business location in
the first European e-locations Monitor Survey conducted by
International property consultants Healey & Baker. Paris
Central ranks second, followed by Dublin and Amsterdam. The
UK capital is rated highly for staffing ICT skills, access
to markets, international transport links, Web design skills,
the English language, and flexible employment conditions.
The other UK centres included in the list of Europe’s
26 top e-business locations are Cambridge, Thames Valley and
Silicon Glen.
The British government’s willingness to attract Indian
IT investment is also evident from its visa restrictions.
Since 2001, Indian software specialists are able to apply
for two year “multiple-entry” work visas that allow
them to visit Britain as many times as they like. The amendments
have opened the floodgates for Indian IT professionals, and
with Britain facing a massive skills shortage in IT, they
are pouring in. Last year, of the total number of foreigners
to enter the UK on an IT basis, 63 percent were Indians. Government
figures show that 18,257 foreign IT professionals came to
Britain last year. Of this, 11,474 were from India and this
year the numbers are rising faster, according to official
estimates. The second highest number of IT professionals (2,034)
came from the US. Of these, many are of Indian origin. Many
of the 748 professionals who came from South Africa and the
708 from Australia are also reportedly of Indian origin. Indian
professionals have clearly taken the lead in South Asians
taking up IT jobs in Britain. Compared to the 11,474 professionals
from India, there were only 221 from China, 132 from Pakistan,
69 from Sri Lanka and 15 from Bangladesh.
Wales
Even within the UK, the principality of the Wales is mounting
separate initiatives for wooing Indian IT companies. Leading
the brigade is the Welsh Development Agency, which has opened
up major new business opportunities for Wales as one of the
world’s fastest growing centres of IT expertise.
Its MoU with Nasscom will help develop strategic alliances,
joint ventures and partnerships between companies in India
and Wales. Agency Vice President, Business Development, David
Muxworthy feels that the agreement opened up exciting new
opportunities for Welsh companies to trade and exchange ideas
with Indian businesses which were at the forefront of new
developments in the rapidly expanding global IT industry.
Says Muxworthy, “The agreement with Nasscom will be invaluable
for the Welsh IT sector and provide new opportunities for
expansion, which is a pivotal factor in creating a knowledge-based
economy for Wales. Indian IT software and service companies
are increasingly expanding into newer markets and establishing
a presence in various European countries. The UK is the most
favoured destination for Indian software exports to Europe
and we want to ensure that Wales is seen as the preferred
location for new investment.”
But what does Wales provide by way of infrastructure? Wales,
and in particular South Wales, has an established software
sector consisting of a range of software development, IT services
and Internet/design organisations. In addition, the region
has thriving electronics, telecommunications, new media and
financial services sectors that include large multinationals
such as Sony, LG, Alcatel, Mitel and NTL. With over 700 companies
employing nearly 65,000 people, there is an excellent source
of potential customers for local software companies. 230 software
companies in Wales employed over 10,000 software developers,
computer analysts and programmers in 1998, with ample room
for growth. Wales is home to several leading software houses
such as Ubiquity, BT, Alcatel and Target Financial Systems.
Part of UK’s ‘Silicon Valley’ which is centred
on the M4 corridor, between London in the East and Wales in
the West, Wales is only two hours from London and provides
a lower cost option with higher levels of productivity. Wage
inflation has generally not been experienced by programmers
and skills retention levels are excellent.
Academic expertise available in Wales is evident in the Centres
of Excellence programme. Wales’s world-class expertise
in science, engineering and technology can help individual
companies to develop and improve their products and processes
to become more competitive. The programme is enabling the
centres to develop and maintain stronger, more focussed links
with companies. Two examples of IT-related centres of excellence
are: The Centre for Advanced Software and Intelligent Systems
at the University of Wales Aberystwyth and Centre for Communication
and Software Technology at the University of Wales Swansea.
The telecom infrastructure in Wales is an integral part of
the UK network. Consequently, Wales has benefited from a 40
percent reduction in call charges over the past ten years.
Telecom resilience and availability of bandwidth in Wales
are amongst the best in the world. There is 100 percent digitised
infrastructure with over 550,000 km of fibre optic cable.
The network in Wales uses SDH technology that includes a digital
network of over 400 exchanges providing companies with a highly
resilient service. ADSL services are available in all major
cities. Cardiff’s Intelligent City project offers connectivity
up to 100 Mbps. Both BT and NTL offer services via satellite
networks and provide access to over 30 separate satellites
including Intelsat, Eutelsat, Inmarsat, Astra and Panamsat.
Germany
Germany is not far behind in wooing Indian IT investments,
as evident from a host of measures announced by the government
to relax entry of Indian IT companies. Leading the pack is
the Frankfurt Economic Development Corporation, trying to
promote FrankfurtRheinMain as the gateway to continental Europe
for Indian IT-companies. Four years ago the Frankfurters started
to actively promote their city as an ideal location for Indian
software companies in Mumbai, Bangalore and Chennai. Today
29 Indian software companies are represented in the FrankfurtRheinMain
region including seven of India’s Top Twenty like TCS,
Infosys, Wipro, Cognizant and Polaris. Says Tsewang Topden,
Indian consul general in Frankfurt, “Frankfurt has today
become the gateway to continental Europe for Indian software
companies.”
The statistics regarding FrankfurtRheinMain are quite enviable.
The total GDP of this region is Euro 40 billion with the ICT
sector contributing almost 35 percent. There are 85 telecom
service providers and 158 ICT companies. It has 208 ISPs with
700 km of fibre optic network supporting from 2 Mbps to 155
Mbps connectivity. It contributes about 85 percent of Germany’s
Internet traffic with 200,000 monthly domain name registrations.
There is a new legislation that creates a uniform corporation
tax rate of 25 percent for all taxable corporate earnings,
whether distributed or retained, whether earned by a domestic
corporation, a dual resident corporation, or the domestic
permanent establishment of a foreign corporation.
The introduction of the German green card in August 2000 has
been a trendsetting milestone for Indian software companies
doing business in Germany. Companies can now get visas for
their highly educated staff with an IT or telecommunications
background within a week. This matches the requirements of
their mainly project oriented work. With 1893 green cards
issued (as on December 28, 2001), Frankfurt is the city with
the second highest density of green card holders in Germany.
“We still have a shortage of first rate software skills
in the German industry. This offers ample business opportunities
to Indian software companies,” says Micheal Fuhrmann
of the Frankfurt Chamber of Industry and Commerce. Additionally,
thanks to Frankfurt’s central location, the airport,
the railroad and highway links as well as the Schengen Treaty,
Frankfurt offers easy access to most of the continental European
markets.
However, there are problems galore in Germany. Germany’s
softer entry rules barely registered because of the perception
in India that German society was racist. One German trade
official in Mumbai told an Indian software company looking
to crack Europe’s largest economy that it would be better
to market itself as a US or English company in Germany, rather
than Indian, underlining cultural attitudes that still deter
a full commercial embrace between the two countries.
Additionally, Germans famously favour long-term business relationships
rather than short, one-off contracts that typified US companies’
early dealing with the Indian IT industry. This may hit Indian
efforts in Germany, where as one small business in Mumbai
has discovered, “companies seem reluctant to try out
a relationship and certainly not with a small Indian company”.
What is needed is more capital intensive marketing, which,
if it succeeds, could be lucrative.
Also, much of European industry is restructuring. Large chunks
of the manufacturing base notably in Germany’s mittelstand
is medium-sized, family-owned and struggling to rebuild as
EU markets are harmonised. Indian companies believe there
are huge opportunities here for Indian software firms.
Since last summer, thousands of computer specialists, many
of them from India, have been given green card work permits
to come to Germany. But with seven million foreigners already
living in the country, the scheme has provoked a highly charged
debate about German immigration policy. Ricco Deutscher, co-founder
of Flatfox, a small software company in Frankfurt, says without
the green card system his business would have ground to a
halt. The company, which develops software for online advertising
and marketing, has recently hired four computer experts from
Asia. “There’s no way without the green card for
us,” says Deutscher. “Information technology is
our core competence and we need the right skills in the right
place.” Narinder Soni, in his 20s, joined Flatfox a few
months ago. As a green card holder, he has to be paid a minimum
salary of almost $50,000 a year.
Even so, he says many Indian computer specialists prefer to
go to America or Britain, where lower taxes, a common language,
and the presence of settled Indian communities offer a more
attractive package.
“There
are lots of adverts for work in America and Britain,”
says Soni, “but we hardly find anything related to the
German IT industry. That must be a disadvantage for Germany.”
That may explain why so far just 5,000 of the 20,000 available
German green cards have been awarded. Businesses complain
that the conditions are too restrictive with residence permits
limited to five years, and the spouses of holders not being
allowed to work.
In response to complaints, the government has set up a special
commission that will try to reconcile the country’s need
for skilled workers, with German fears about immigration.
“Green cards have finally opened a door to a discussion
on the economic necessity of immigration,” explains commission
member Frank Niethammer. “But it is also clear that green
cards aren’t as effective as we hoped they would be,
because we’re not the only country in the world looking
for qualified IT staff.” In a country with almost four
million unemployed, defining a modern immigration law to make
Germany more attractive to skilled foreign workers is highly
controversial.
The Indians also consider German language skills as a problem.
Indian interest in Germany has to be matched by a willingness
to learn the German language. Xenophobia in Germany is also
an issue, especially with regard to the latest right-wing
hate incidents there.
Frankfurt Economic Development GmbH provides companies with
all necessary information to realise their business plans
in Frankfurt am Main. It supports them in their dealing with
local authorities, i.e. to facilitate work and residence permit
application procedure. It draws on its large store of expertise
on plan approval processes and laws, on building and transport
regulations, and on taxation and related matters. It helps
companies procure power, water and waste disposal. Frankfurt
Economic Development GmbH assists companies looking to expand,
to deploy new technologies or to reengineer existing operations
by helping them find suitable real estate or business partners.
In the ultimate analysis, Rakesh Singh, GM, Productivity &
Quality, SISL, lists out all the advantages and disadvantages
of doing business in Germany. The advantages include relaxed
visa, intense domestic economic pressure to outsource and
the recognition of India as an ocean of talent. Other than
racism issues, other disadvantages, according to Singh, are
competition from East Europeans and longer decision cycles.
His tips for newcomers: “Stress on quality and not just
cost, be patient with results and knowledge of German.”
Italy
Though most Indians would still tend to associate Italy only
with pizzas and pasta, after the UK and Germany, it’s
Italy’s turn in Europe to roll out the red carpet for
Indian IT professionals. Italy has a shortfall of around 50,000
high technology professionals and Italy and India could complement
each other in this respect, feels Antonio Emannuelli, President
of SMAU.
The Indo Italian Chamber Of Commerce & Industry is promoting
trade and bilateral co-operation in the ICT sector between
India and Italy, apart from aggressively wooing Indian companies
to set up shop in Italy. Some of these initiatives include
the one in the Pisa University whereby the Indo-Italian Chamber
of Commere & Industry in co-operation with the Scuola
Superiore Sant’Anna of Pisa selected 20 Indian graduates
from the Universities of Mumbai and Bangalore for a one-year
sponsorship for the International Master on Software Engineering
course in Pisa.
More importantly, the chamber has been successfully organising
yearly business delegations to SMAU-The International Information
& Communication Technology Fair in Milan (Italy). The
exhibition is not just an occasion to experience new technology
but also a meeting point for companies interested in expanding
their business in Italy and Europe. During the days of the
exhibition, business meetings are organised for Indian ICT
companies with their international counterparts. Says Winston
Pereira, chief operating officer, Fiera Milano Representative
Office in India, “We have been promoting SMAU for the
last seven years but the response has not been very good so
far, but we see this changing slowly.” More so in view
of the MoU signed this year between Nasscom and SMAU during
the annual Nasscom jamboree in Mumbai.
One thing unique about the Italian initiative is that they
are trying to get Indian investments in Mezzogiomo and other
less developed areas in southern Italy, rather than in the
prosperous north. But what are the incentives on offer? Emannuelli
reveals that the government is willing to underwrite equity
of newly formed companies in Italy up to 30 percent. It could
also assist Indian companies in finding Italian IT partners
and help solve problems relating to language, administration
and law. He also welcomed investments by Indian companies
in Italy, particularly in Southern Italy, which has the highest
concentration of the electronics industry in regions such
as Catania, Naples and Bari. According to him, Indian companies
could use the Italian market as a base to penetrate the European
market.
Citing advantages of the Italian industry, Emannuelli reveals
that Italy had the lowest labour costs and the second highest
productivity in industry in Europe. He also assured Indian
companies that difficulties faced by Indian professionals
in obtaining visas and work permits was in the process of
being sorted out. Says Nirmal Jain, MD, Tata Infotech, “Italy
and Japan are the key areas for expansion for the Indian industry
and there can be various areas for collaboration between India
and Italy, including communications, banking and multimedia.”
What about Italian infrastructure? The Italian ICT market
witnessed a growth of 5 percent in 2002 to reach Euro 74 billion
and is expected to grow by 6.2 percent in 2003. 41 percent
of this market is contributed by IT and the remaining 59 percent
by telecom. The telecom and retail segments are the hottest
sectors, with growth potential of 12 and 10 percent respectively
in 2002. There are about 26,000 ICT companies with top ten
vendors contributing about 52 percent of the market share
while SMEs contribute about 48 percent. Of the total Euro
13 billion services market, operating management contributes
41 percent, implementation 26 percent, support services 23
percent and consulting 10 percent.
The finance sector accounts for around 21 percent of the industry.
India is good with accounting packages and that can help many
Indian companies to enter the market there. Says Pereira,
“Every year we take around 20-30 SMEs to Italy for business
purposes and all of them come back with business. TCS is among
the bigger companies from India which has an office in Florence.”
Another good reason for Indian companies is the fact that
with value addition of more than Euro 89,716 per employee,
Italy has the second highest productivity in Europe after
Germany. And perhaps the most attractive incentive is the
low start up and operational costs in comparison to many other
European countries.
Italy is also one of the cheapest places in Europe. The north
is expensive but the south is inexpensive. The economy of
the south is a fairly undeveloped economy. Hence the attempt
to promote the south. There are two ways of setting up a company
either through partnerships or as a private limited firm.
However, there is a perception about a law and order problem
in the south due to the presence of the mafia. But the movement
of the mafiosi is restricted only to the real estate realm
and they are hardly involved in the ICT sector.
The common perception is that there is a language blockage.
But Emannuelli believes that IT has no language. “The
language problem will be faced by the front man who has to
deal with other companies for contracts. But we prefer to
have an Italian man as a front man since he knows how to do
business in Italy better. He can relate to citizens better,
“ he adds. In Italy, he further adds that there is no
racism.
Belgium
Countries like Britain, Germany and Italy who are wooing Indian
IT investment are also known well to most of the Indian diaspora.
But there is a smaller European nation with a booming ICT
sector, which has also joined the ‘Welcome India’
bandwagon, though not too much is known about it in India.
The country in question is Belgium, the headquarters of NATO
and the EU, a land till now renowned in India only for its
cut-glass artefacts.
But before Indian software companies head towards Belgian
shores, it’s imperative to take a look at the size of
its total ICT market. In 2000, it was worth Euro 14.3 billion
up from Euro 13 billion the previous year. The breakup of
this market presents a clearer picture the IT hardware and
office equipment market grew to Euro 2.9 billion from Euro
2.7 billion, telecom equipment to Euro 1.5 billion from Euro
1.3 billion, telecom services to Euro 6 billion from Euro
5.5 billion and IT services and software to Euro 3.9 billion
from Euro 3.5 billion.
The Belgian ICT market has grown by 50 percent over the last
four years, with the number of companies growing by 31 percent.
Last year, 3,140 companies were active in the ICT sector,
most of them being SMEs with less than 250 employees. 50 of
the companies currently account for 61 percent of the total
employment. IT services and software has become the most important
sub-sector of the ICT sector with more than 30,000 employees.
There are some more figures to establish Belgium’s leading
position in the ICT sector. Europe has approximately 500,000
subscribers of broadband, including ADSL, cable among others.
One third of these subscribers reside in Belgium. Moreover,
in 2000 it was estimated that 50 percent of Belgians owned
a mobile phone while 75 percent of families with children
between 8 to 12 own a PC.
Flanders, the most economically prosperous zone of Belgium,
contributing over 58 percent of Belgium’s GDP, is heading
the list in attracting ICT investment with over 58,000 employees
already working there. Telecommunications and IT are two leading
industries in Flanders. The Flanders Language Valley is the
centre for speech technology. Microsoft and Cisco have already
bought into it. Companies like Telindus make high-speed modems
for specialised applications. The IT-based graphics industry
is the best in the world and has many Hollywood success stories
to its credit. BARCO is a world leader in display systems
and is almost a generic name for projection systems. Flanders
has clusters of hi-tech zones, including Flanders Multimedia
Valley where Philips Hasselt is located, Flanders Graphics
Valley where Agfa Gevaert is present, Antwerp Digital Mainport
cluster with an EDS development centre having 1,400 people,
as well as the Flanders Digital Signal Processing (DSP) Valley
at IMEC in Leuven and the Flanders Language Valley. Flanders
has other large names in niche technologies like Ubizen, Vasco
Data Systems, Rijndael in Internet security and encryption,
Banksys, Proton World International in banking, Capco in e-finance,
Barco, Artwork Systems in digital imaging, LMS in automotive,
Flanders Language Fund and Babel in speech technology, Alcatel,
Bell, Tyco and Siemens in telecom equipment. Other prominent
names include IBM, Xerox, Canon, Minolta, Real Software, Oracle,
Cap Gemini Ernst & Young, Xeikon and Panasonic among others.
But other than these obvious advantages of infrastructure,
what other carrots does Belgium or Flanders hold for Indian
IT companies? The Belgian software sector is large, worth
Rs 174 billion in 2000, comparable to total Indian software
exports of Rs 172 billion. Besides, Belgium projects a shortage
of approximately 35,000 ICT workers by end-2002. Though there
has been some squeeze on margins and billing pressure for
some companies in 2001, the e-government sector is seeing
one of the strongest growth rates in Europe. IT solutions
for energy, utilities and the healthcare sector too are showing
tremendous promise. Besides, there is the added incentive
for Indian companies to gain a foothold in continental Europe
via their offices in Belgium. 60 percent of EU purchasing
power is within 500 km of Brussels, which automatically takes
companies close to customers. The proximity to European headquarters
of major commercial and official organisations also helps
in lobbying activities. Not surprisingly, Indian companies
like TCS, NIIT, Infosys, Softsell, HCL Technologies, Mastek,
Hughes and Mahindra British Telecom have already set up shop
in Flanders with a view to target the EU market. Big companies
like TCS have tied-up with the Belgian telecom company Belgcomp.
Today, Belgians are able to make better phone calls thanks
to TCS. Other companies present in Flanders include Wipro,
Syntel, Alcatel and Citibank. Even Syntel is working with
telecom companies, which includes mobile communication as
well. A lot of these companies have set-up in-house IT centres.
There are some virgin niche areas left for Indian companies
to tap in Flanders. These segments include wireless LAN (802.11),
Bluetooth, voice over IP, security, XML, middleware, embedded
software and Java. In addition, even managed services including
data centre processing, help desk, network services and application
maintenance markets are comparatively untapped. Companies
like Ford, Volvo and General Motors assemble cars in Flanders.
Besides, it has arrival ports for Japanese cars like Mazda
and Honda. Says Raj Khalid, trade commissioner of Flanders,
“All these areas require a high amount of data management.
We are also very strong in logistics. The port of Antwerp
has the largest covered warehousing in the whole world. So
there is a need for a lot of electronic data exchange and
Indian IT companies can play a role there.” Flanders
has many logistics companies who are experienced in supply
chain management. Logistics play a key role in making Flanders
the leading supply hub for Europe.
The telecom infrastructure in Belgium is one of the best in
Europe, with telecom investments amounting to 0.52 percentage
of its GDP, which is even higher than both the UK and the
US. Belgium was incidentally the first country in the world
to use ATMs and phone banking. At 400 cable subscribers per
1,000 people, Belgium tops in the world in cable subscriber
density. Agrees Santosh Madbhavi, Corporate Head, MBT, “The
market is not very large, but there is a huge opportunity
for us as they have a strong telecom infrastructure, especially
in the mobile phone sector. We provide software solutions
as well as software services to these companies.”
Even real-estate prices are quite low at 210 Euro/sq. m/year,
much lower than London at 645 Euro/sq. m./year, Frankfurt
at 405 Euro/sq. m./year, Paris at 620 Euro/sq. m./year, Munich
at 310 Euro/sq. m./year, Dublin at 260 Euro/sq. m./year and
Milan at 235 Euro/sq. m./year. Even housing rents come to
$1,375 per month, much lower than even Asian cities like Singapore,
Hong Kong and Tokyo. Setting up a company costs between Euro
6,800-18,600, while registration and notary fees amount to
Euro 300 and Euro 500 respectively. Even corporate tax rates
offer attractive incentives.
Adds Khalid, “Culturally, Indians do not face many problems.
70 percent of the Antwerp diamond market is controlled by
Gujaratis. Language is not a problem since most Belgians speak
at least three languages namely Dutch, French and English
along with their native language Flemish.” Thankfully,
racism has not raised its head here.
Denmark
The land known for the mermaid and Hans Christian Andersen’s
fairy tales has joined the brigade of Governments pushing
for Indian IT investments in their countries. ‘Invest
in Denmark’, the Danish Government’s foreign investment
promotion body that was newly set up, is talking to some 20
IT companies for starting activities in that country. It is
also looking at the Indian biotech industry, besides offering
to promote telecom, pharma, organic food and shared service
businesses. According to the Tokyo-based regional manager
for Asia, Thomas Christensen, the time is ripe for an Indian
entry. Since the IT industry slowdown, Danish companies have
begun to cut costs. Outsourcing not being preferred unlike
in the US they would rather do business with companies that
have a presence in Denmark.
Though L&T, TCS, Sonata, i-flex Solutions, Infosys, Aprosoft
and Procon have a presence in Denmark, Indian investments
are minuscule, according to Jakob Andersen, trade commissioner
at Bangalore. Denmark’s IT and communication units are
concentrated in Copenhagen, home to IBM, Dell and Sony bases,
and which is the gateway to northern Europe. With its high
IT penetration, it has been rated by a PricewaterhouseCoopers
study as the most favourable site for e-business centres in
Europe. A skilled human resource base, low operating costs,
labour flexibility, good business environment, with over 40
incentives, an expat taxation scheme offering 50 per cent
lower taxation than usual and a projection as the fourth most
innovative country by 2005 counted among its advantages.
The total size of the IT industry in Denmark: 12,860 companies
last year, and the growth rate from 1992 was 21 percent. What
does Denmark offer to Indian IT companies? The first is a
new, low corporate taxation rate of 30 percent (made effective
from January 1, 2001). Next, an income tax rate of only 25
percent for expatriates (scientists/management) during the
first three years of their stay. Only 1.23 percent goes towards
the employer’s social security contribution. This compares
extremely favourably with many other European countries where
contribution rates are much higher. There is no taxation on
transfers of profits abroad. This is especially beneficial
to foreign holding companies. Other advantages include low
establishment costs, competitive office rental rates, low
telecommunication and electricity price levels, advantageous
depreciation rules, high rate of fiscal co-operation agreements
with other countries, and unique principles for cross-border
consolidation for both domestic and foreign subsidiaries,
making it possible to transfer profits or losses directly
to the parent company.
Denmark is embracing the concept of a knowledge-based and
networked New Economy. Industry and community are co-operating
closely in the process of rapid transformation towards the
creation of a full-scale “Digital Denmark”. Denmark’s
strength in the IT industry is based on the Danes’ ability
to make technology and content blend seamlessly together.
Combined with a talent for staying ahead with cutting edge
technologies, this enables Danish communities and businesses
to navigate the networked New Economy.
Denmark also offers world-class software development and integration
capabilities in cutting edge areas that include pervasive
computing, e-business, wireless Internet technologies and
e-learning. There is also high penetration, use and familiarity
with the Internet (75 percent according to GfK Worldwide,
Q2 2001). This makes Denmark an ideal test market for new
technology. Another incentive for Indian companies is Denmark’s
entrepreneurial innovation. According to the Innovation Index
published by the US Council of Competitiveness, Denmark will
be the world’s fourth most innovative nation by 2005.
The deregulation of the telecom sector, and the ensuing enhanced
competition has meant that Danish telecommunication charges
are among the lowest in Europe The Øresund region is
Europe’s highest IT-spending region per capita, as well
as fourth highest in scientific output, according to recent
figures from the University of Copenhagen, Department of Geography.
Denmark offers a number of important tax incentives to foreign
businesses compared to most European countries. First of all,
Danish tax legislation is very straightforward: Danish tax
rules are applied exactly as they are described in the legislation
not through individual deals which makes regulation simple
and firm.
Other added Danish carrots for India IT Inc. a highly developed
IT infrastructure, aiming at broadband for all by 2002 (TDC
2001). Denmark has the world’s seventh highest penetration
of both mobile phones and PCs and eight highest penetration
for private internet connections (IMD 2000). Denmark is also
among the world’s leaders in R&D for all three of
the following clusters: Mobile telephony in North Jutland,
software and biotech/medico in the Øresund region.
“E-government,”
the public sector is at the cutting edge of new developments
in IT. In 1996 the telecommunications market in Denmark was
liberalised. From having a sole supplier of telecommunication
it now hax six: TDC, Tele2, Telia, Debitel, Orange, and Sonofon.
Liberalisation has led to increased competition and keeps
costs at a minimum.
(With inputs from Srikanth R P)
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