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Mon, Apr 12, 2004 - Page 12 News List

IBM unit's India deal a trendsetter

OUTSOURCING IBM Business Consulting's deal with Daksh eServices comes as more US companies show an interest in using India as a base for back-office operations


IBM Corp's acquisition of an Indian outsourcing firm could trigger similar deals and strengthen the practice of "offshoring" white-collar work to India, industry experts said Thursday.

"We will see more such deals," said Pawan Kumar, who worked with IBM in 1996 to 2000, helping it establish outsourcing operations in India.

Scores of American firms have cut costs by farming out routine office jobs to India and other countries where wages are significantly lower.

The outsourcing practice has ignited the resentment of labor unions and politicians in the US, who criticize the loss of American jobs to cheap overseas labor. They say workers are made to pay with their livelihood for increased profits of corporations.

IBM announced last Wednesday that its subsidiary, IBM Business Consulting, would buy Daksh eServices, a back-office services firm with 6,000 employees.

The deal's expected to close next month.

The Wall Street Journal newspaper put the deal at between US$100 million and US$150 million. IBM India wouldn't discuss such details.

"Our shareholders expect us to tap opportunities in the developing world," IBM India spokeswoman Varsha Chainani said. "And we are aggressively expanding our reach in India."

Despite US criticisms of outsourcing, companies are showing an increased interest in using India as a base for outsourced operations, industry leaders said.

Many Indian outsourcing firms lack the funds to expand and are looking for investments from big players or venture capital funds. Some are also considering share offers to the public.

On the other hand, global giants such as IBM are looking to acquire several thousand low-paid employees in a short time to provide outsourcing services to their clients.

"This industry is investment hungry," said Raman Roy, an outsourcing veteran who sold his call center firm, Spectramind, for US$126 million to Indian technology firm Wipro last year.

"If [Indian] companies have aspirations and want to have a certain size, they have to look for deep pockets," Roy said.

The IBM acquisition has shown that US corporations are determined to outsource their operations to India and become service providers by setting up or acquiring Indian operations, Roy said.

"This shows that even global majors have to find a way to play in this market place," he said.

Kumar, now founder and chairman of Bangalore-based software firm VMoksha, said the price cited in the media reports suggested that Daksh had got a good deal, signaling India's growing status as an outsourcing provider.

"The price shows that confidence in India as a destination for outsourcing has gone up," Kumar said.

The deal has generated excitement in India, where information technology minister Arun Shourie and the main software trade body, National Association of Software and Service Companies, saw it as an affirmation of the outsourcing trend.

"It signifies the coming of age of India as the preferred destination for offshore services in terms of talent pool and infrastructure," the group said in a statement.

The Indian Express newspaper reported that Shourie said the deal was "great news for India," but also brought up the issue of the US backlash and India's dependence on the US in this field.

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