Sunday, 9 November 2008

Tech Mahindra to “northshore” UK public sector work to Tyneside

(By Anthony Miller) In what must be the offshore equivalent of a ‘man bites dog’ story, this weekend’s FT reports that Indian IT services firm, Tech Mahindra, is to open a call centre in Jarrow, South Tyneside. According to the article (see here), Tech Mahindra may later extend its use as a shared services centre for public sector contracts, a term referred to as ‘northshoring’. UK government has been seen as somewhat of a no-go area for Indian firms, but if you take a peak ‘under the covers’ you may be surprised at the amount of UK public sector work that is offshored to India, both directly and indirectly. We will pick up this theme again in a later piece.

Tech Mahindra is one of the less well-known Indian players, but has close UK ties. It was founded as Mahindra BT, a joint venture between Indian diversified conglomerate, Mahindra & Mahindra, and our very own BT back in 1986 to provide offshore services to BT. Since then, MBT expanded its services to other telcos, though BT is still its largest client by far, representing about 60-65% of its billion-dollar annual revenues. MBT rebranded to Tech Mahindra and IPO’d in 2006. BT still holds a 31% stake in the company, though there have been many stories that BT is looking to divest (e.g. see BT looks to ditch Indian stake). If so, this would bring a handy £500m+ to BT if they could find a buyer, though this is only a quarter of what it could have got if they had managed to sell the stake at the end of last year.

BT shares its offshore favours with most of the leading Indian Sis; in fact it is also Infosys’ largest client, spending over $400m with the SI over the past year. HCL took over BT’s Northern Ireland call centres in 2001 and has been expanding there ever since. In the light of BT’s recent profit warning (see accompanying piece), we will await its Q2 results on Thursday with great interest.

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