Friday, 15 February 2008

Indian headcount

Capgemini and Atos Origin's results, and George O'Connor's comments relating to LogicaCMG (see below) have brought up the offshore issue again.

Anthony Miller (now from Arete Research, but previously from the 'Holway' team!) put up a very interesting chart (see below) at the Regent Conference last week. I hope Anthony will not mind me sharing it with you. (Anthony is in India at the moment so I wasn't able to check)

You will see that IBM not only has the highest Indian headcount but also is growing that headcount faster than any other player. But around 50% of IBM's Indian headcount relates to its software and hardware operations - rather than IT services.

The leader in IT services offshoring is clearly Accenture by a country mile. Interestly, Accenture have got to that position by organic growth whereas the next four in the rankings have all utilised M&A to some extent. CSC bought Covansys, Capgemini bought Kanbay, Steria (which had pretty minimal offshore presence before) bought the UK's Xansa and EDS bought Mphasis.

Anthony's chart really does show how exposed LogicaCMG is. If there is one message to Andy Green it just must be that he has to boost LogicaCMG's offshore delivery QUICKLY. Competing with any of these major players is going to be increasingly difficult without it.

But how? The obvious answer would be "Buy something". But, even if you find the right candidate at the right price (remember most Indian players have much higher valuation metrics than their western buyers) that's not an easy a ride either. Anthony pointed out that revenue growth at Kanbay had halved after it was acquired by Capgemini with margins diving and staff attrition soaring. EDS fared a bit better but still runs Mphasis as a separate brand. Even the organic route is not problem free. Although Xansa was the out-and-out UK winner in the offshoring stakes, it did very little for shareholders over many years in the process - apart from finally getting them a pretty high priced bid from Steria.

Mind you, it is interesting to note that BT Global Services (from whence Andy came) isn't even on Anthony's chart!

But the problems are not all one-way. The Indian players are themselves finding it difficult to ramp up their onshore consultancy activities. Anthony concluded that "It is easier for onshore vendors to ramp up offshore delivery than for offshore vendors to ramp up consultants".

So there is still hope!


Ram said...

Hi Richard,

If we analyse based on pure IT services excluding BPO strength, [ Accenture has around 19000 BPO employees out of total 38000 ].

So it seems, Accenture has around 12% of its IT services employees in offshore locations. LogicaCMG with its 7% is not far behind ;-)

Jokes apart, I think the key for LogicaCMG will be to take at least the late mover advantage and build a quality based, genuine strength in offshore delivery (and not just a quick increase in the headcount).

But if it is just about playing the number game, would it be that difficult to get these employees and rank higher in the chart? Should Logica resist the temptation?

Malabei said...
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Ivan said...
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Phil Fersht said...


Good points regarding the build out of the IT services' offshore resources. You are correct, in my opinion, that the next battleground for the offshore vendors is to compete for the onshore work (i.e. those services that are very complex to take offshore). Moreover, with the appreciating Rupee and deepening recession, the attractiveness of taking services offshore should lessen somewhat, and the wage levels of local IT talent should decrease. What tactics do you propose to the offshore vendors to bolster up their onshore staff-base?

Phil Fersht