The Hindu Business Line : Offshore product development set for consolidation

Bangalore, July 11 The offshore product development industry in India is all poised for consolidation, with smaller companies becoming likely targets for acquisition. The market favours either big players or small niche players, and therefore small companies that are not niche would have to scale up business or get acquired.

Many small companies in the industry might have difficulty with growth numbers, and consolidation is the way out for these companies, said Dr Anand Deshpande, Chairman and Managing Director, Persistent Systems. However, this is true not only of the offshore product development (OPD) industry but other industries as well, he added.

Others in the industry agree there would be consolidations. There would be two or three big players and the smaller players would find it difficult, Mr Ajay Kela, Chief Operating Officer and Managing Director, Symphony Services, told Business Line.

MNCs’ strategy

Lot of small captives run by multi-national companies have been acquired as well. Dr. Deshpande said these deals are not about acquisition of companies, but about acquisition of assets. The people and the businesses get transferred, and this helps to reduce cost for the MNCs.

He said generally captives having 20 to 25 people have low productivity, and it is not worthwhile for the parent company to run them. These acquisitions happen without announcements, and the MNCs do not tend to make a noise.

The slowdown in the US might affect the OPD industry in India if it a prolonged one. Product companies operate over a longer time frame, and if the market slows down for more than 2 to 3 quarters, it will have an effect on the OPD companies, said Dr Deshpande.

Signs of slowdown

He said as far as Persistent is concerned, the company sees a small number of customers under pressure.

These customers might delay, stop or increase projects, he added. Out of its 170 customers, some would face this challenge.

The company has not seen a slowdown in entirety, but some projects have shown signs of slowdown, Dr Deshpande said.

When there is a squeeze in the market, all companies would think of what next is to be done.

In some cases the companies would outsource more, and some companies would go out of business, he said. But this was not specific to the OPD industry, he added.

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