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Hey America, Welcome to Europe
Tuesday, May 1, 2001

The consulting industry in the US labors under the ominous shadow of a slowdown in US tech spending, and dozens of benched consultants. This should, it seems, be a global phenomenon. Perhaps we in the US are myopic, but usually when the US struggles the rest of the world feels the crunch — in fact when we catch a cold the world gets pneumonia. But across the Atlantic in Europe, the climate for IT consulting feels more like Menlo Park circa 1999 than like post tech boom America. Let me qualify, the irrational exuberance is not there, but definitely times are better than in the US.
In countries like the UK, France and others that have traditionally been dominated by inefficient state-run entities, for transportation or healthcare, there is really a move to optimize systems through technology. For example, the UK government is striving to dramatically cut costs for the country’s beleaguered national healthcare service. This creates a huge opportunity for IT services firms, new technology firms, and especially Indian companies that have supported systems integrators in the US.

This new demand for services is huge, talent is scarce, and business is booming. The need is not just for basic IT services but also supply chain optimization, streamlining processes and connecting with the customer via all means including the Internet. The new buzzwords seem to be cost avoidance and reducing the cost of customer acquisition and retention. Additionally, logistics management companies seem to finally have a better chance of actually reducing costs.

Traditionally, the nature of the EU, with its many languages and currencies, has been complex and has created additional barriers to entry for global companies. But the US has led the charge in adapting systems and processes that reflect the global nature of business. These endeavors, while often led by the large systems integrators, have been populated by the Indian middle tier providers such as Infosys, Wipro and the iGATE group of companies. As a result of this massive experience set and knowledge, these companies seem to be ready to take on a leadership role in the EU.

In the UK, the recently privatized rail companies are still operating with outdated systems that date from an era when British Rail was propped up by the British government. As a result, due to some recent accidents and lack of systems coordination, the once rather on time public network has ground to a halt. No one questions that the changes in the system were needed but it seems that managing the change process has proven to be more than was expected. This and other large examples are also mirrored in a variety of industries, like retail, where there is a big need for services such as supply chain systems.

Some examples: Ubiquitous UK pharmacy, Boots, still gets over 25 deliveries per day each from different suppliers, as compared with a US equivalent like Walgreen’s that probably only gets one or two deliveries coordinated with products from all of the various suppliers. Often it is the shipping company that is contracted to arrange for the consolidation of products to a site or location. Similarly, Tesco, the UK grocery chain often has stores that are without certain foods and other items for days, a reality that would cause a revolt in the US. The UK car market has also been a great example. In the UK you can typically order a car from the Internet and save over 20 percent from the dealer cost while picking it up from the same dealer. Too bad the French and others seem to have forgotten what caused the revolution in the first place.

This is typical all over Europe, where distribution systems seem to have been developed as an afterthought. These business systems and processes are supposed to be part of a vertical integration within the industry and surprisingly, there is very little dialogue and collaboration that would enable the many suppliers who service the same customer to pool resources and collectively reduce costs. Often these costs are passed on to the consumers and are large enough to make people question them at length.

Really this is where hubs and marketplaces would truly make the world a better place not only for the consumer but also for management and all the various players in the chain.

The advent of technologies such as the Internet, SFA, CRM, B2B integration, and SCM has really started to empower people, few that they may be today, to be able to leverage supply from where goods are abundant and going to waste to where they are in short supply. In the US, due to market competition, we have seen brick and mortar companies get punished by the Street for neglecting to implement new technologies. In the EU, due to nationalistic pride or protectionist policies, companies have not been punished yet, but they will be. European companies have been slow to take advantage of technology, and as a result, are now opening up to optimization through technology. This will create opportunities for tech companies as US companies penetrate the market and create competitive pressures. In retail for example, Walmart and some other big chains are making inroads where local stores once had a foothold.

This doesn’t mean that Europe will explode as a market for high-tech the way the US did in the 1990s. European companies tend to be slower moving than American firms, forging very strong relationships with the companies that they work with, which are hard to break. Development in house is still considered very important, and nationalistic tendencies often come into play when deciding which company to work with in developing solutions. So it may be initially hard for companies like Infosys and Wipro, and US-based firms like Pricewaterhouse-Coopers to conquer the European market with great speed. However, once in the door, if they provide a good stable mature solution, they will have a long relationship. This has been illustrated by many of the mid-tier consulting companies in recent years.

That said, countries like Germany and the wireless savvy Nordic countries are starved for tech talent, and so a huge upsurge in IT services business seems inevitable. American multinationals are also adding to the mix. In Ireland, Scotland and the Netherlands the local governments have encouraged development and heavily incented American companies to establish hubs. As a result distribution centers, call centers, engineering and development system integrators and consulting companies seem to have made the most inroads. The cheaper labor and farming out of projects to India, Eastern Europe and other similar places have given companies like Sun, Dell, Intel and others a great ability to leverage the capital and location while maintaining low costs. This has allowed them to compete and actually supplement the mother ship with profits from Europe where the margins are still larger than in the US.

Will it be enough to buck the downward trend in the US and keep big IT firms on the upswing? Perhaps. It’s all in the ability of the consulting space to leverage the market as quickly as possible.

So, all you people who are sitting on the bench at some systems integrator. Start boning up on the romance languages and German and you just might be able to get away to Paris, London Dublin, Rome or Frankfurt. And who knows you might be part of something big.

Supreet Manchanda, a former General Partner of Adler Ventures and KPMG’s supply chain & Ecommerce Practice is currently freelancing while enjoying a well deserved sabatical where he is working on “101 things to do with dead VCs” by popular request (from some of the the VCs and some former founders). He can be reached at supreet@corp.siliconindia.com.

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