With the US economy in doldrums and companies cutting back on IT spending, Indian tech majors are now turning their radars towards new locations such as Europe, West Asia, and Latin America.

However, industry observers say that these markets will be tough for Indian vendors to break into, as issues such as language, labour policies and longer sales cycles are likely to impact profitability in the near-term.

Earlier this year, Infosys CEO Kris Gopalakrishnan had said that they planned to reduce dependence on the US to 40% from 60%, without detailing a time frame. At the end of the second quarter of the fiscal, Infy's Europe revenues stood at 28.1% while contribution from North America was 61.5% of overall revenues. Like Infosys, TCS, HCL, Wipro, Satyam and Polaris are investing in growing their businesses in non-US locations, especially Europe, Australia, West Asia and Asia-Pacific (APAC).

Angel Brokings Harit Shah says that diversifying geographically is definitely a better idea than depending on one location, but vendors have to be prepared to face challenges. Newer locations are slow to send work offshore, and Indian service providers have to invest heavily on setting up nearshore centres. Europe, despite predictions of reduced IT spend in 2008-09, seems to be the next favourable port of call.

Karthik Ananth, engagement manager, Zinnov Management Consulting, points out that many top Indian IT firms have increased their revenue contribution from Europe to over 20% and the profitability has also been good till date.