Time is overripe !!!
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Source: The Hindu (http://www.hinduonnet.com/ew/2005/09/26/stories/2005092600030100.htm)
Up for grabs
Raja Simhan T.E.
MNCs are grabbing Indian software companies, especially niche players. Even as the trend is bound to gain momentum, the software industry needs to focus on building intellectual property capability and grooming the next-generation entrepreneurs.
TILL last month, Revathy (name changed on request) was happy to be part of one of India's best product companies — iFlex.
Today, she is even happier - to be a part of multinational firm Oracle that has bought her company.
IFlex is among scores of Indian software companies catching the eye of multinationals. Companies acquired by multinationals range from small to large players, including Hughes Software, Future Software, inSilica, Ygyan Consulting, Fortune Infotech, Vision Healthsource and Daksh.
A common thread linking the acquired companies is their specialisation in a particular sector. Further, some of these companies have a large number of employees.
It is easy for MNCs to acquire such companies and scale up quickly instead of setting up an India presence from scratch, which will not only be time-consuming but also a costly proposition, say analysts.
iFlex and Oracle have worked closely for years on building complementary products for mutual customer benefit, and nearly all of iFlex's customers are joint customers with Oracle. Ygyan, with its niche skills in SAP, was a good target for Cognizant Technology, which strengthened its SAP practice through the acquisition.
Similarly, the Pune-based Fortune Infotech with its BPO (business process outsourcing) services was an ideal candidate for Covansys.
The trend of multinationals acquiring Indian software companies will not stop with this list. There are many more acquisitions in the pipeline, especially of tier-II software companies and small companies with specialisation in a particular domain.
And fuelling the acquisitions are factors such as availability of niche players, advantage of offshore capabilities, and good price.
Subu D. Subramanian, Director and Senior Vice-President, Satyam Computer Services, says there will be an increasing number of multinationals looking at Indian companies for acquisitions. However, they will be looking mainly at niche players.
Customers are forcing their vendors to have a strong India presence to take advantage of cost and quality of work. "Give me the India advantage" is the slogan of clients of multinational firms, he says.
Multinationals have two or three ways to enter India. They can partner with Indian companies or scale up operations organically. However, both these could be time-consuming while clients want things to happen quickly. The option left for multinationals then is to acquire a company, and start work offshore immediately, he says.
According to Subramanian, earlier the India advantage was cost. That's not so any more. It is now a combination of cost and quality of work, and manpower. CIOs (chief information officers) and CFOs (chief financial officers) abroad have understood this message clearly, and will prevail on their companies to set up presence in India, he says.
Further, multinationals that did not take advantage of the India offshore advantage two to three years ago have seen the benefits the country offers their competitors having a local presence, he says.
Alok Shende, Director, ICT Practice, of consulting firm Frost & Sullivan, says multinationals are looking at Indian companies having a global presence, especially in North America. Till now, around 90 per cent of the acquisitions have been exercised based on the low-cost model, and the rest were based on intellectual property (IP) - iFlex is an example of the latter, he says. Multinationals will now look at small and medium-sized Indian companies with good IP. However, there are not many Indian companies with IP. This is an area that Indian companies and entrepreneurs will need to focus on, he stresses.
With many Indian companies going the multinational way, the country needs to have new entrepreneurs coming out with innovative solutions and products, feels the Nasscom President, Kiran Karnik. "However, unfortunately, there aren't many," he says.
Askedwhether there will be a dearth of big Indian brands in the software industry in future, Karnik says, "Yes, this is an issue we need to address. With the availability of a readymade talent pool doing highly-skilled work, we cannot stop multinationals acquiring our companies. The need of the hour is to groom a number of next-generation Indian entrepreneurs. This is a tough challenge facing the industry."
According to Partha Iyengar, Research Vice-President, Gartner India, multinationals will look more at service-based Indian companies for acquisitions. Since time is running out for many multinationals to take the offshore advantage India offers, the compelling alternative for them is to acquire a company with 200 to 300 people and scale up quickly. For multinationals, the first step will be on the people or HR side, he says.
There is also increasing pressure on tier-II Indian software companies to scale up in size. "It is going to be a survival issue for tier-II firms. They need to merge among themselves or become a target for acquisition. However, till it becomes a survival issue, mergers and acquisitions will not happen among tier-II firms," he says.
raja@thehindu.co.in
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