Recently, I’ve blogged about the issues at Satyam and Wipro, two key suppliers to the Life Sciences industry. I’ve also written about the implications for Indian outsourcers. I’ve suggested that there may be a consolidation coming in the sector. The question that I kept asking myself is who could be among the survivors? We think this can be a crucial issue for the Life Sciences Industry as they seek lower costs, equal or better quality of services and trustworthy/ethical partners.
One potential candidate could be Tata Consultancy Services (TCS). So far, they have avoided the scandals associated with its competitors. (At least so far, who would ever have thought that Goldman Sachs would become a mere commercial bank?) In fact, Tata recently announced the acquisition of Citibank Global Services Limited for a cash price of $512 million US. In addition, TCS gained a contract worth $2.5 billion US for nine and a half years providing process services to Citigroup. The deal was announced in late December. Looks like someone is coming up a winner.
By no means do I think Tata will be the sole surviving large Indian outsourcer. I divert momentarily to mention one of India's premiere companies, Infosys. A very recent article in Motley Fool (http://www.fool.com/investing/international/2009/01/13/3-reasons-to-love-infosys.aspx ) endorses the longer term viability of Infosys with the following commentary: "While accounting scandals at Satyam (NYSE: SAY) and Wipro (NYSE: WIT) are making Indian IT consulting firms look like Enron in a sari, Infosys carries the torch with a steady hand. The third quarter of 2009 saw sales grow 8% year over year to $1.17 billion, and earnings per ADS jumped from $0.55 to $0.58. Of course, nobody would call the entire nation corrupt, but you have to admit that the steady-as-she-goes success of Infosys makes the Foolish heart beat a bit more strongly". More about Infosys another time, so for now let's get back to Tata (TCS).
Could TCS be the last man standing in the Indian outsourcing sector? We give it a definite perhaps/maybe. Picking up some of the better pieces from the US financial meltdown is one way to expand market share. Some of Satyam’s customers might be swept up by TCS in the fall out that sure to come. While Wipro’s misdeeds might seem like venial sins (OK, I admit it, I went to parochial school.) by comparison, I think clients, especially "ethical" pharmaceutical companies may be looking for a new outsourcer might be a little reluctant to get mixed up with another vendor evidencing signs of ethical lapses.
Hence, Tata. Satyam’s existing clients, if they decide to switch, or, are forced by a financial collapse, would have to move quickly to replace their service provider. There is a question as to whether or not TCS would have the capacity to take on all of Satyam’s existing business. Or, would the usual suspects, IBM and Accenture or an Infosys be rolled out. Rest assured, they’ll be trying to move in, hard and fast.
2009 will probably be the crucial in determining if Tata will be the last man standing in Indian outsourcing. First, we have to see how Satyam comes apart and how fast. Next, we have to see where the pieces go. Finally, we have to learn whether Indian outsourcers were a brief moment in the history of outsourcing and offshoring that fell victim to the large multinational outsourcers when they could no longer sustain themselves.
Against this backdrop, other factors need to be considered, terrorism, the standoff between India and Pakistan, and the eventual shrinkage in the cost of doing business between India and the rest of the world, primarily, the United States. The time difference alone will ensure that absolute savings will not be the only factor.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Guy de Lastin
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