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Mid-tier IT firms look to shore up onsite presence

Mid-tier IT firms look to shore up onsite presence
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First Published: Fri, Dec 03 2010. 01 48 PM IST
Updated: Fri, Dec 03 2010. 01 48 PM IST
Mumbai: A revival in information technology spends, rising demand and the lure of larger contracts are prompting mid-size software service firms to step up their onsite presence, especially in the United States, industry watchers said.
Increasing resources at overseas locations could also shield IT companies from any potential protectionist moves by governments, while better positioning them to tap into gradually reviving IT budgets.
“Clearly, calendar year 2010 was much better than 2009 and calendar year 2011 is expected to be even better than 2010,” IDFC Securities analyst Hitesh Shah said.
Global enterprise IT spending is forecast to reach $2.5 trillion in 2011, up from an expected $2.4 trillion in 2010, according to research firm Gartner.
Typically, jobs that make onsite operations a necessity tend to have a higher contract value due to relatively higher costs, and deal sizes can touch $30 million to $40 million, a large number for midcaps, Angel Broking analyst Srishti Anand said.
“Second thing is that, with this kind of protectionism, it becomes really important for mid-cap companies in order to get business to really have the local resources in place,” she added.
Analysts say companies such as KPIT Cummins, Geometric Ltd, Mindtree and even firms that already have a decent onshore presence such as Patni Computer Systems and MphasiS could be looking to beef up their presence at onsite locations, either organically or through acquisitions.
Top-tier IT firms such as Infosys, Wipro and Tata Consultancy Services already have a strong onsite presence, and now it’s time for the mid-caps to follow suit, Prabhudas Lilladher analyst Shashi Bhusan said.
Geometric, which provides products, software and engineering services to industries such as automotive and heavy engineering, plans to increase its US workforce to 500 from the current 300 over one year.
The company also intends to increase its onsite capabilities in China and Romania, chief executive Ravishankar G. said.
“The number of employees we’ve moved from India to a place like US is lower than the number of native hires we have in the US, so we don’t fall into these visa issues,” Ravishankar said, adding there was greater awareness on outsourcing post-recession.
“Recession has forced people to start looking at outsourcing,” he said.
Recently, Zensar Technologies Ltd agreed to acquire Akibia, a unit of US-based PSI Holdings Inc, to increase its onsite presence.
Similarly, Mastek Ltd said it had acquired the assets of US-based SEG Software. Increasingly, companies have to commit to a stronger overseas presence with more native resources to be able to bid for large contracts.
“There were at least three bids in which we could not participate because they wanted at least 30% of work to be done onshore, which was difficult for us to provide,” Zensar chief executive Ganesh Natarajan said.
Some other companies are also taking the organic route to expanding onshore.
“At this time, expansion should be more organic because valuations are now really turning a little towards the higher side,” Angel Broking’s Anand said.
Earlier this year, Patni, which has delivery centres in Indiana and Illinois in the US, established another in Texas and acquired a unit of Universal American Corp to ramp up its presence.
“Growing onsite is all about getting new projects,” Prabhudas Lilladher’s Bhusan said.
“And the time is just right.”
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First Published: Fri, Dec 03 2010. 01 48 PM IST