IN THE EYE

It is time for consolidation led growth in the industry and we have seen a spate of alliances including mergers and acquisitions in the last several months.

The current market conditions have, in a way, forced players to think differently and seriously consider different models of growth and partnership.

The drivers are many- growth is obviously one compelling reason for companies that hitherto chalked out organic models, to consider being acquired by a larger player. Be it Netkraft, Kshema or Ivega, the belief that doing it alone may not be possible anymore has been the key driver.

Another important driver, especially in the BPO space, is that buyers want some control in the offshore business to ensure that their interests are taken care of. Given the level of maturity of the Indian BPO industry, this is not surprising.

In fact, a lot of mid sized and large companies are now considering alliance led growth as well as competence building as a part of their overall strategy. Recognizing this trend, Prayag organized a panel discussion on this topic during its recently held Confluence seminar.

The panelists included Mr. Naresh Ponnapa, CEO, Indecomm Global Services, Ms Usha Sekhar, Program Director, neoIT and Mr Sanjay Anandram, MD, Jumpstartup. The panel discussion was moderated by Ms Anjana Vivek, Faculty, IIM (Bangalore).

It was apparent from the engrossing discussions that alliances are here to stay in the Indian IT industry. For mid sized companies, alliance led growth is a way to attain scale as well a breadth of competencies. This is critical at a time when offshoring is becoming a part of global corporation's overall sourcing strategy and hence service providers would need a certain size and profile to become a part of the buyers' consideration set. This view was espoused by Mr. Ponnapa, who believes that a combination of organic and inorganic growth is the way to go.

For smaller companies (and there are over 2800 sub $10 M companies in India), a strategic partnership, including a buy-out by another company may be a way to ensure longevity. With VCs increasingly focusing on large investments or on niche ventures, the option of getting additional rounds of funding to grow a services business is more or less not there anymore. Thus, aligning with a larger player, or merging into a larger entity, appears to be a pragmatic option.

Looking at it from the buyers' perspective, alliance models like JVs make sense for the following reasons – the buyer retains some control over the relationship, while not needing to expend too much bandwidth (which would be the case if they decided to go captive). Not only that, the buyer could retain the option of either buying out the stake, or selling it off at an appropriate point in time. The advantage to the buyer is that it expedites the offshoring process, while affording the flexibility in future. We have seen various models such as BOT and JVs emerging, especially in the BPO segment. Ms. Sekhar articulated the buyers' perspectives lucidly during her presentation.

It is clear that alliances and strategic partnerships are the way forward. What then are the important considerations to create alliances that work for your company? Ms Vivek articulated a 4D model or framework that could be used by organizations that wish to pursue an alliance led strategy. Analyzing your own strengths, the partner's strengths and hence mutual compatibility are the first 2 considerations. Studying the environment to ensure that it is conducive to the kind of partnership the organization has in mind is also important. Apart from all this, we also need to consider a fourth dimension - time. As with all initiatives, setting a time frame within which to evaluate and select the right partner is very important. In another sense, the timing of the initiative needs to be right.

For more details on the panel discussions and presentations, please visit www.prayag.com