Passage to India

Buoyed by a rapidly growing domestic market, MNC IT services players are ramping up headcount in a big way.

Last fortnight, the rumour mills added another name to the evergrowing list of potential suitors for French IT services company Capgemini. After Infosys and Wipro, Anil Ambani’s Reliance Communications was reported to be in talks with Capgemini for a possible acquisition. Quiz Salil Parekh, who heads Capgemini’s India operations, about it and pat comes the laconic reply: “We do not comment on market speculation.”

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Parekh, however, is more forthcoming about the company’s future in India. “In 2007, we grew by 145 per cent in terms of India headcount. We are well on track to increasing our headcount to 40,000 people by 2010 that we had announced earlier,” informs Parekh. Currently, the company’s headcount is close to 17,500 employees— up from about 6,000 in October 2006. It was then that Capgemini went ahead and acquired Kanbay, which brought in 6,900 employees, taking its India headcount close to 12,000. Back then the company had announced that it would hire 35,000 people by 2010 in India. A couple of months ago, the company revised that number to 40,000. That’s a whopping 22,500 more employees over the next two years or so—a doubling of its headcount. Currently, India accounts for 20 per cent of the company’s workforce and that number is likely to increase significantly over the next two years.

Ramping up workforce

Capgemini is not the only multinational IT services giant that has been cranking up its headcount in India. IBM increased its headcount by almost 38 per cent to 73,000 from about 53,000 a year ago. With that kind of addition, IBM’s workforce is just a snapping distance behind that of Wipro at 79,832 employees. In fact, IBM’s India headcount is way ahead of other Tier-I Indian players like HCL Technologies and Satyam. A recent research report by Edelweiss Capital estimates that the top three MNCs like IBM, Accenture and Capgemini are likely to add above 75,000 employees over the next two years in the country. Close to a hundred thousand people are likely to be hired by some of the top tech MNCs in India.

Even companies like European IT services major LogicaCMG, which began operations in the country as early as 1996 but has been relatively slow to ramp-up in India, are bullish now. “The India centre is slated to grow exponentially over the next two years, as we see opportunities increasing in the European market,” says Mahesh Desai, Director, Outsourcing Services, LogicaCMG. Logica currently employs 2,500 people.

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Desai feels that it may not be right to compare European IT players like Logica and Atos Origin with their American counterparts. “You cannot compare the growth of European companies in India against the benchmark of the US companies. Europe accounts for nearly 90 per cent of our revenues. Customers in this region prefer to work with vendors that can offer a global delivery model... However, today we see the offshore component gaining increased significance and based on the business needs we will grow our offshore centres in India and the Philippines,” says Desai.

Changing game rules

But most companies believe that the India story is much more than just adding headcount. “The competitive landscape in the global delivery and outsourcing is changing. The era of competition based on labour arbitrage is coming to an end… it’s not yet over but it’s coming to an end,” says Andrew Stevens, Managing Partner for the Asia-Pacific region, IBM Global Services. “The future will be based on value provision, high skills, high competence and high business value generation. Our positioning in India and across the world is based on these factors,” adds Stevens.

Andrew Stevens, Managing Partner for the Asia-Pacific region, IBM Global Services
Andrew Stevens
Basically, India will not be viewed as a low-cost, headhunting ground but as a centre of competence and talent. According to Stevens, India as a geography, and Indian centres will have to develop their own unique competency.

“In India, we have a specialisation in service delivery platform for telcos. The capability that the team in India develops is used in centres across the world. That’s the future… not labour arbitrage,” says Rajesh Nambiar, Vice President and General Manager, Global Delivery, IBM India. Similarly, Accenture has set up a life sciences centre of excellence in Bangalore. A couple of months ago, the company also announced the setting up of Management Consulting Centre of Excellence in Gurgaon.

As Pankaj Vaish, Managing Director of Delivery Centre Network, Accenture, says: “At our health and life science centre of excellence in Bangalore, we do work that supports our pharma clients and helps them reduce lead time to market and cost. Similarly, we developed a BPO blueprint in India that defines how we run a centre. That was developed in India and is now being implemented across all other locations. We can do that in India because we have scale, maturity and the talent.” But Vaish adds that India is just a part of the company’s global delivery network, albeit a very crucial one. Capgemini, incidentally, has over 400 clients in the country.

Premium on innovation

Salil Parekh, Head, Capgemini India
Salil Parekh
LogicaCMG’s Desai says the company’s India centre primarily does high-end work. The company has an innovation centre that has developed solutions especially in areas like financial, telecom services and intelligent transportation systems.

The MNC growth story in India is not complete without a mention of the burgeoning domestic market. IBM alone earned revenues close to a billion dollars from the domestic market. In fact, during the last quarter, IBM signed more than $1.4 billion in new domestic services contracts.

Similarly, Accenture has been very aggressive in the domestic market— one that local players have largely avoided citing lower margins. “Not true!” says IBM’s Stevens. “The margins in India are comparable with other parts of the world. But if all you offer is cost arbitrage then it’s likely that you will get lower margins. We were never in that business.”

According to TPI, the total value of contracts signed by Indian buyers has grown to e3.9 billion in 2007, up from e2.2 billion in 2006. And, MNC players like Accenture, HP and IBM are winning much of the Asia-Pacific deals.

Battlefield India

Pankaj Vaish, Managing Director of Delivery Centre Network, Accenture
Pankaj Vaish
“The Indian marketplace has become very attractive and being here has become necessary. In the initial years when the MNCs came into India, they only reacted to the aggressive Indian companies, but today they have got into a competitive situation,” says Mark D. Mayo, Partner and Managing Director, Global Advisory Services, TPI.

Also, with a US slowdown looming large, it is likely that companies like IBM, Accenture and Capgemini that have a significant presence in India are likely to benefit from their ability to leverage offshore costs—something that only pure play Indian players had during the US slowdown of 2001-03.

Considering the fact that Indian players are rapidly expanding their footprint (75-plus cities across the globe) and are slowly but surely increasing their share in the global outsourcing market, the battle ahead will be quite interesting.

Additional reporting by Anusha Subramanian