Outsourcers shy of blockbuster M&A
Bangalore: In an industry where size matters, India’s showpiece software services firms need to be bold and acquire firms or risk playing second fiddle as bigger IT players emerge as one-stop shops for cost-conscious clients.
Oracle and Dell have snapped up targets to grow beyond their core areas, while Xerox is buying Affiliated Computer Services for $5.5 billion to jump into the outsourcing sector.
By acquiring players with a wide client base, India’s top three IT firms — Tata Consultancy Services, Infosys Technologies and Wipro — can leapfrog in size and clout, helping them win multi-million dollar deals.
So far, India’s near-$60 billion IT sector has shied from blockbuster deals and instead focused on acquiring smaller IT divisions to tap opportunities in areas such as utilities and healthcare.
“For good measure these companies have been conserving their resources and as competitive pressure grows now is the time to fill up some of their skill gaps through acquisitions,” said Ved Prakash Chaturvedi, managing director at Tata Asset Management.
India’s top three IT firms each has a market value of between $18 billion-$27 billion and boasts a global footprint.
These exporters individually employ about 100,000 staff, mostly in low-cost India centers with manicured lawns, pizza and Subway outlets, auditoriums, fitness centres and golf carts to move around the sprawling campuses.
IBM, Accenture and Hewlett-Packard have also expanded their India-based workforce, enabling them to move more of their overseas work to these lower-cost centres.
IBM stole a march in 2004 when it swooped on Daksh, an early local backoffice outsourcer, for $170 million, and now employs over 70,000 staff in India. Accenture has over 40,000.
India’s two-decade-old IT sector already faces cut-rate competition from the bigger players and is struggling to retain experienced staff, usually lured away by global rivals.
“What might happen in the long-term is customers might work with large all-services-under-one-roof kind of vendors, which Indian vendors do not offer,” said Gartner India’s principal Read more…