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IBM merger shows the way for
India
By Indrajit Basu
KOLKATA - IBM's acquisition of PwC Consulting
worldwide in a US$3.5 billion deal that was announced at
the end of July has evoked mixed reactions in India.
While one section feels that the deal, which is poised
to turn IBM Global Services, the consultancy arm, into a
leading player in the consultancy arena of the Indian IT
services market, and a force majeure for Indian IT
biggies, there are others who feel that it is not going
to do a whole lot of good to the country
"The
acquisition enhances IBM's capability to provide the
full lifecycle service starting from need assessment and
business fit to deploying solutions and managing and
evolving the next round of services," said Mayank Khemka,
an IT industry analyst, "and all these put together
could easily emerge as the most powerful force making
life difficult for Indian IT companies that have forayed
into consulting following the global IT slowdown."
Lately, leading Indian IT companies such as Tata
Consultancy Services, Wipro, CMC Ltd, HCL, Tata Infotech
and even Infosys have made forays into consulting, both
in the domestic and international markets, to climb up
the value chain.
Indeed, IBM's acquisition of
PwC Consulting will enable the "Big Blue" to grab a
commanding position in the consulting end of the IT
services market and provide not only the technology
capabilities which are IBM's forte, but will also enable
the merged entity to address business issues, which
together could make IBM Global a key player in the
Indian IT space. And, according to some experts, the
competitive environment that this would usher in will
benefit India in the longer run.
"A positive
outcome of the acquisition is that it could lead to
consolidation, which in turn will stabilize pricing
issues [within the consultancy space of the Indian IT
industry]," said Sunil Mehta, vice president of the
National Association of Software and Services Companies,
India's leading grouping of software companies.
According to Mehta, there are other spin-offs as
well. Globally, large outsourcing deals are won by not a
single entity but by a consortium of IT companies, such
as Hewlett Packard partnering with Accenture, or
Accenture with KPMG. "In India, such consortiums haven't
started forming yet and I feel that the IBM Global-PwC
combine could set a trend for the formation of
partnerships with Indian IT companies for larger
domestic deals," said Mehta.
Mehta added that
yet another significant beneficial impact would be an
expansion of the domestic IT outsourcing pie. "Customer
education towards IT outsourcing within the country will
increase, which until now was happening on a rather
small scale," said Mehta, adding that "this will benefit
everybody to address the global market".
Meanwhile, IBM India officials are looking
forward to exciting times. "Though this is a global
announcement, I am very excited about the local
opportunities," said IBM India's managing director
Abraham Thomas. "Although the two companies have
competed, they also have complementary capabilities.
PwC's excellent credentials for business consulting and
business processes complement our leadership in the
local market in systems integration and technology
consulting. In short, this acquisition will enable IBM
to combine business insight and technology to help
clients drive greater business returns," Abraham added.
PwC's consulting arm in India employs about 900
people and has over 100 clients, including the Bharti
Telecom group, Hutchison Telecom, Citibank, ICICI Ltd
and Indian Oil. In addition, PwC is also engaged in
implementation of various state government sponsored
projects in the Indian states of Andhra Pradesh, Orissa
and Delhi. IBM employs over 4,000 people in India and
industry estimates suggest that about 1,000 people could
be engaged in the consultancy business, making the new
strength of the merged entity about 1,800-2,000 people.
However, as an inevitable consequence of any
acquisition or merger, an atmosphere of confusion and
fear of retrenchment prevails among the employees at PWC
Consulting's Indian headquarters located in Kolkata.
"Fear is quite natural and it's true that we have lots
of doubts," said an employee who wanted to remain
anonymous.
According to PwC India sources, the
immediate impact would be a major realignment of clients
for PwC. The most important change, they said, would be
clients serviced by practices such as Oracle or
HP-Compaq. Being direct competitors to IBM in the global
arena, these two companies could become a source for
direct conflict for IBM Global's India interests. In
other words, PwC India could lose clients and services
that compete with IBM elsewhere. Other names in this
list include Toshiba and Fujitsu.
However, the
fears and hopes apart, the deal has certainly come as a
lesson for the Indian software sector. Despite the
clearly felt need and no dearth of cash, none of India's
top software companies has acquired consultancy
expertise of any consequence. For these companies,
therefore, perhaps the IBM acquisition is an indication
that if they want achieve the status of global players,
they will have to acquire advisory expertise at a rate
faster than they have up to now.
(©2002 Asia
Times Online Co, Ltd. All rights reserved. Please
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