Som Mittal, President of the National Association of Software and Services Companies (NASSCOM) in India, stated in an interview with the Hindu newspaper this month that the Indian IT industry was projecting towards totals of $300 billion USD per annum in revenue by 2020. Most important in this, according to Mittal, is the rise in the Asian economies vs. the West in terms of GDP expansion, but he states also that the Indian IT industry must adopt a global model to continue to expand successfully. The BPO / Offshoring model, where companies maintain extensive IT centers in India to offset labor costs primarily requires that clients have absolute security and stability in the long term quality of service provided.

“As an indicator of the future, Mr. Mittal pointed out that in 2025, Asia’s (excluding Japan) share of the global Gross Domestic Product was expected to rise at a compounded annual growth rate of 6.3 per cent, against North America’s projected 3 per cent. To realise this potential, the industry had to leverage on its strengths and adapt to the changed world dynamics, he said. ‘We are an industry which competes fiercely within itself and also collaborates fiercely.’”

“Elaborating, Mr. Mittal said the industry had to look beyond the Fortune 500, and tap into the small and medium businesses. It also had to reduce the heavy dependence on the traditional segments of BFSI (Banking, Financial Services and Insurance), Telecom and Manufacturing, and move into public sector and healthcare verticals. In terms of geography, the BRIC (Brazil, Russia, India and China), the Gulf Countries and Japan had potential, he added. ‘The demographic shifts will fuel the growth of new sectors,’ he said.”

Mittal also feels that India could lose as much as 10% of it share in the IT outsourcing market to other countries during the same time period if the country does not maintain and constantly improve its standards. International BPO / IT outsourcing in other regions of Asia such as Thailand, Vietnam, Malaysia, and the Philippines could emerge as a strong local challenge, though like China the IT industry in these countries suffer a competitive disadvantage due to the fluency of English in India. But strong developments in Eastern Europe or Latin / South America could also pull global market share in IT outsourcing away from India. Considering the amount of jobs at stake with a 10% loss in the sector, Mittal advises advanced planning to counter these trends and strengthen India’s position in global IT.

According to Wikipedia,

“NASSCOM is the global trade body with over 1200 members, of which over 250 are global companies from the US, UK, EU, Japan and China. NASSCOM’s member companies are in the business of software development, software services, software products, IT-enabled/BPO services and e-commerce. NASSCOM has been the strongest proponent of global free trade in India. NASSCOM strongly supports the elimination of the cap on H-1B visas in the United States as this protectionist anti free market legislation allows overpaid underskilled American nationals to hold jobs which are better and cheaply performed by Indian expatriates.”

Outsourcing is also becoming a political issue in the United States with laws proposed to tax companies that employ overseas labor at a higher rate, and of course the H-1B visa cap. The statement on NASSCOM’s wiki page seems more inflammatory than diplomatic, and harsh words combined with nationalism are going to be a poor choice for any side. I tend to agree that the H1-B Visa cap is protectionist, but a wider look at immigration policy would also show that applicants for H1-Bs have a much higher range of social opportunity than their peers – they are not exactly a hard luck group in comparison.

How can an American IT firm really compete with an Indian IT firm in labor costs, or pay a programmer $50,000 – $80,000+ when the same job is done at $6,000 – $12,000 in India? To be sure the last 10 years of economic development has produced one of the largest classes of highly trained IT workers in the world, and the educational & infrastructure resources continue to expand in quality & extent in India. The NASSCOM website is recommended to keep on top of what is going on in India IT – there are many conferences, seminars, blogs, forums, and press releases on file:

http://www.nasscom.in/

“NASSCOM® is the premier trade body and the chamber of commerce of the IT-BPO industries in India. NASSCOM is a global trade body with more than 1200 members, which include both Indian and multinational companies that have a presence in India. NASSCOM’s member and associate member companies are broadly in the business of software development, software services, software products, consulting services, BPO services, e-commerce & web services, engineering services offshoring and animation and gaming. NASSCOM’s membership base constitutes over 95% of the industry revenues in India and employs over 2.24 million professionals.”

“NASSCOM was set up in 1988, at Mumbai to facilitate business and trade in software and services and to encourage advancement of research in software technology.”

How does Mittal’s projection compare to the current situation? According to NASSCOM, Indian IT recorded a record total of $87 billion USD in total revenue in 2008.

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Som Mittal / NASSCOM – India IT at $300 Billion in Revenue by 2020

It was announced mid-day Monday in Mumbai – Tech Mahindra has officially won the bid for the Indian IT giant Satyam.  Satyam founder Ramalinga Raju remains in jail with a number of other company financial officers and accountants. The trial is set to begin later this year. Raju’s public confession of misstating accounts to the tune of over $1 Billion USD, serially, for years has reduced the company dramatically in global stature, so this event is seen as the first step in closing the last chapter and starting a new one for Satyam. It is a huge move for Tech Mahindra.

“Tech Mahindra is a global systems integrator and business transformation consulting firm focused on the communications industry. With the convergence of media and telecom, the changing landscape of the telecom industry is becoming extremely competitive. As companies rapidly strive to gain a competitive advantage, Tech Mahindra helps companies innovate and transform by leveraging its unique insights, differentiated services and flexible partnering models. This has helped our customers reduce operating costs and generate new revenue streams…”

“For over two decades, Tech Mahindra has been the chosen transformation partner for wireline, wireless and broadband operators in Europe, Asia-Pacific and North America. Majority owned by Mahindra & Mahindra, one of the Top 10 industrial houses in India, in partnership with British Telecommunications plc (BT), world’s leading communications service provider, Tech Mahindra has grown rapidly to become the 6th largest software exporter in India (NASSCOM 2007) and the second largest telecom software provider from India (Voice & Data 2007).”

“Over 23,000 professionals service clients across the telecom eco-system, from our global network of development centres and sales offices across Americas, Europe, Middle-east, Africa and Asia-Pacific.”

Related: Mahindra & Mahindra Limited – http://en.wikipedia.org/wiki/Mahindra_%26_Mahindra_Limited

When the bidding for Satyam began, IBM, L&T, Cognizant, Wilbur Ross, iGate, KKR, Spice, Apax, and many other international IT companies and Private Equity firms were in the race to acquire the company. Due diligence is said to have suggested that Satyam is booking $1.5 to $1.7 Billion USD in BPO sales per year. L&T had already acquired a 12-13% stake of Satyam shares on the open market when the company was at ts low point. After Tech Mahindra won the bid, L&T praised the company and suggested they would do great work to build value at Satyam.

Late speculation had really focused on Cognizant, due the the fact that Satyam was one of the original founders of Cognizant itself. In the end, what can be regarded as the smallest company of the bunch won the race.

“They (Tech Mahindra) have emerged as the clear winner. They had bid at 58 rupees ($1.16) per share,” one of them told Dow Jones Newswires. The next bidder was Larsen & Toubro Ltd. at 49.50 rupees, the person added.

To date, Tech Mahindra has been exclusively providing IT services to the telecom sector. Their outreach, employee numbers, current accounts, and worldwide presence is expanded in a massive way with little to no overlap with existing business. The main question appears to be whether they can calm the worries of Satyam clients over account security in the long & short term.

Kiran Karnik, Chairman of the Satyam Board of Directors, stated:

“On behalf of all Satyamites and their families, we congratulate Tech Mahindra on being the highest bidder. The selection of the highest bidder, in a fair, open, and transparent process, signals a new stage for the Company in its progress towards stabilization and growth. We hope this will infuse greater confidence and comfort amongst customers, who will continue to be happy with Satyam’s excellent service delivery. This event ought to dispel the anxiety of all stakeholder as it re-positions the Company’s commitment to revival and good governance.”

Satyam has a large number of assets in India including office space, industrial parks, intellectual property, and technology. With the state of the accounting and the complexity of the ownership relations surrounding the assets, it is probably necessary for an Indian based company to take over at this time. Like Satyam, Tech Mahindra has a worldwide presence already – main offices in the Gulf, Singapore, EU, USA, AU, etc. as well as a strong base in SAP outsourcing ( http://www.techmahindra.com/capabilities/sapCapabilities.aspx ). Since SAP is one of the areas Satyam is known best for internationally, this should be a strong synergy in a dynamically expanding sector.

The board overseeing the bidding process stated at one point that “things other” than only financial would be given consideration when selecting the winning bid, but there is no explanation as to why the other companies failed to bid higher. Tech Mahindra is reported to have the majority of the sum needed for the sale on hand as cash and would take over Satyam by weeks end. The first impression one has of the company when visiting their website, is that they are “employee-centric”:

http://www.techmahindra.com/index.aspx

Few other corporate websites I have visited show the children of employees around the world as “ambassadors of their brand,” but it seems to be a nice touch. Many people were hoping that the company to acquire Satyam would protect the employees there, the government required certain non-dismissal of employee and non-sale of assets requirements to the acquiring company for a period of three years. But it looks like Tech Mahindra is quite family oriented, and have no need to dismiss any of Satyam’s current employees.

If Tech Mahindra can manage this in the right way, they can build one of the most powerful and dynamic software & BPO companies in India over the next 10-20 years. Nevertheless, Satyam as an entity may in fact vanish soon, if TM decides to merge the company officially.

Reference:

http://uk.reuters.com/article/companyNews/idUKBOM47614620090413

http://www.bloomberg.com/apps/news?pid=20601091&sid=aZiAt5whvGVk&refer=india

http://en.wikipedia.org/wiki/Tech_Mahindra

http://news.bbc.co.uk/2/hi/business/7996459.stm

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Official – Tech Mahindra wins bid for BPO Pioneer Satyam