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Thursday, March 02, 2006

Tier II Offshore Players May Get Acquired

While there are expectations of consolidation of the global nine in the outsourcing industry given that projections show, traditional big six on shaky grounds in clinching new IT outsourcing deals, there comes the announcement of intent by Cap Gemini & Atos Origin of plans to acquire India based service providers. Paul Hermelin, CG’s honcho is quoted as saying that India is very exciting. IT developments are national pride and as such a consolidation would help us and he has confirmed that he is talking to several Indian companies – medium to small one though. Cagemini's smaller rival, Atos Origin is also said to be looking to make acquisitions in India and planned to increase its staff there to 2,500 by the end of 2006 from 1,500 now. For starters, Capgemini, which employs about 4,000 people in India, was the European company that was "moving the faster" in India, recruiting 400 people a month. Capgemini has previously said it will need 14,000 information technology (IT) staff in low-cost countries to serve its customers by the end of 2008. Before somebody wanting to predict that Indian HQ companies would get pulped by these bold moves of the elites - let me say categorically NO. To give an idea of the scaleups that are happening in Tier 1 companies – public information show that Tier 1 companies are already recruit at a minimum rate of 250-350 consultants every Monday morning – besides several initiatives like global facilities & recruitments by all TIER 1 Players. I am sure when the history of offshoring is written in five – seven years from now, when new leaders including some offshoring majors find a list in the top five of the services industry – the phenomenon called scaling up would be seen as a world record beater across industries - all time, I bet. Underpinning the bullishness of the business, it is found that even smaller players are not so desperate to offer themselves out - instead preferring to wait for the right price – some more time to decide. Indian ecosystem is not so full of corporate dynamism or shareholder activism including institutional activism – despite century old mature financial systems in place – for many selling out is handing over the family silver – not withstanding the fact that many promoters hold limited personal shares. My view is that definitely a few may fold up – but acquisition costs and cultural fits could matter a lot in determining success of acquisitions – potentially look for companies that are already working together or look for companies that are seen to have a hot shot portfolio/ string vertical presence/geographically better resourcing reach within India as attractive candidates – but whether this would provide the full blown synergistic benefits look doubtful. One very senior offshore executive scoffed at the going prices, aimed at acquiring companies for just the established resource base( as against for the IP, customer base, geographical presence etc) – in that case say 5000 -6000 ,his take he can do that in 12 months flat – given half that price .. surely worth pondering over..

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