The Hindu Business Line : BPOs must scale up for big global contracts, says KPMG

Hyderabad April 30 As Indian service providers seek to slice a larger share of global outsourcing pie, centres such as Morocco, Egypt and Vietnam for services and Latvia for R&D have emerged on the outsourcing horizon, offering talent and helping service providers to look at them more seriously to serve as region hubs.

The Global Head, Sourcing Advisory, KPMG Advisory Services, Mr Pradeep Udhas, and their Global Chief operating Officer, IT Advisory, Mr Kumar R. Parkala, provided some insights into the global technology landscape where Indian service providers are faced with new challenge of scaling up.

"While Indian Tier I IT services providers expand, we would have a few companies with revenues in excess of $5 billion possibly bidding for integrated outsourcing contracts worth over a billion.

"We believe that they will not be able to bid for such major deals unless they step up their global footprint and also expand their portfolio of services," Mr Udhas said.

Non-English market

TCS has crossed $4 billion mark and Infosys and Wipro too would be there soon.

To be in the league of IBM, EDS and Accenture, they need to scale up in non-English speaking markets.

To some extent, they have penetrated in parts of Europe, Latin America and China, but need to scale hosting couple of thousand workers.

Citing multi-year outsourcing deal of Bharti and Idea in India, Mr Udhas said IBM and Accenture have moved to next level bagging bid deals.

Other than the US and Europe, Indian services have very little presence in other markets.

For instance, the Chinese market holds promise.

Several India and Chinese companies are exploring joint venture opportunities and some Indian companies may acquire companies to step up local presence.

Cost arbitrage

Will India retain the cost arbitrage? Mr Udhas said: "A software engineer on an average is paid $8,000-9,000 in India against $45,000-50,000 in the US and $70,000 in Europe. We don't think that the wage hikes would continue to grow at about 15-20 per cent per annum versus about four per cent average. Factoring steady growth of outsourcing and cyclical nature of industry, it would take about 14-15 years to catch up with the US and 18 years with Europe."

M&A likely

Mr Kumar Parkala said that the Australian IT market is estimated at about $40 billion and this only reflects the potential this has in terms of outsourcing. TCS and Satyam have stepped up presence and more are likely to do so by even acquiring companies.

Citing the case of recent acquisition of Keane by Caritor, Mr. Udhas said that this is just an example of what could potentially happen in the M&A space. That is, some mid-sized companies making a big ticker acquisitions. One cannot also rule out a much larger acquisition by an Indian IT services provider.

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