The Hindu Business Line : The French connection grows

They shot into the Indian business scene late last year when they acquired British BPO firm Xansa, which has offices in Chennai, Noida and Pune. The French, it is said, are reluctant to outsource work outside Europe, especially to non-French speaking nations. But this 39-year old French company recently broke that practice.

“Asia will be our new playground,” says Francois Enaud, Chairman and Chief Executive Officer, Steria Group, a Euro 2 billion company that acquired Xansa in October 2007 for 472 million pounds. Enaud started his career 23 years ago with Steria and is excited at the way Steria and Xansa (now christened Steria India) have already integrated operations “seamlessly”.

In Chennai to launch a global business leadership programme for employees, in partnership with online graduate school U21 Global, Enaud spoke to eWorld on expanding business outside Europe. Excerpts from the interview:

How do you propose to develop your India operations?

Until recently, Xansa was focused on the UK alone. But in the last six-eight months, we have engaged 10 clients — mainly German and Scandinavian. We are convincing French clients to move work to India as it a better option than working with South American offshore agents. In the last six months, we have done 40,000-60,000 man-days of work out of India and the pipeline is much larger. Depending on our capability to develop new technology platforms, we feel the BPO contribution will be one-third of total revenues in some years. (Currently BPO contributes 10 per cent to total revenues). We plan to develop vertical-specific solutions.

For instance, in HR outsourcing, we would rather look at value-added services than just payroll processing. In traffic management, we can look at congestion management solutions and so on.

We also plan to seek business in India and have submitted a proposal for a traffic management system to the Delhi Traffic Police. It is similar to the systems we have deployed in Paris and Singapore.

Europe has traditionally opposed outsourcing. Is the scene any different now?

The bulk of our revenues come from the public (government) and financial sectors. In the financial sector we see strong willingness of banks to accelerate their transformational programmes to increase productivity. For this, they will have to reconsider their IT programmes and back-office operations.

We are heavily invested in many British, French and German banks in this aspect. We see demand for core banking and e-payment solutions.

Is the US financial sector slowdown being reflected among European banks? Is there any uncertainty in deals or client decision making?

We are yet to see any uncertainty in deals. We are starting to see delays, not holds in (our clients’) decision making process. There is greater caution and stringent checks being considered.

Are deal sizes being impacted due to this? For instance, $1 billion deals seem to be a rarity today.

Yes, we don’t see $1 billion deals any more, there are $100 million deals now. In Europe we are seeing piece-meal deals mostly and not the ‘lock-stock and barrel’ variety. For instance, in Germany we always have to start with a pilot project before bagging the deal for the entire operations. This is because most European nations are not mature markets, unlike Britain, where larger deals come by, minus any pilot.

Your EBIDTA margins in 2007 were about 8 per cent. How will that change with business coming to your Indian centres?

In the mid term we are certainly looking at over 10 per cent EBITDA margin levels. We are increasing internal efficiency by developing more common tools and processes to be deployed for clients. But one must note that outside India, all IT majors have single-digit margins. By that benchmark we are already doing very well.

Do you plan to increase headcount in India?

We have about 5,000 employees in India and our campuses have infrastructure to add about 10,000 more people. We are looking to double the present headcount in three-four years.

In the mid term we expect 40 per cent of our global headcount to be in India. This will be the largest for any European IT player. (Steria has about 20,000 employees globally).

Will the rising inflation and oil prices dampen your plans?

We see a direct impact on transportation costs but not so much on overall employee costs. Employee wage hikes in India have fallen at 10 per cent or below levels, compared to last year’s 15 per cent. We are still a flat organisation and don’t have 1 lakh employees to feel an impact of inflation and rising fuel prices.

Attrition in India has been 18 per cent, comparable with the European average of 17 per cent. We don’t see anything affecting our hiring in India.

bharatk@thehindu.co.in