Flavour of the Month: De-Risking imperative

By : |October 27, 2008 0

PUNE,INDIA: The timing couldn’t be better. The current US downturn and its snowball effect have led the Indian industry look at their models under a sharper lens.

While companies who saw this way ahead and invested in de-risking themselves by geographical and vertical diversification are right now finding their pay-offs, others are now looking at their strategies in a new angle. Portfolios would see major change, be it in terms of markets or offerings or industry segments.

BFSI has so far constituted the largest segment for most, but others are making considerable gains. It’s not the fault of companies if they have always skewed towards BFSI or US, as Kaustubh Dhavse, deputy director, ICT Practice, Frost & Sullivan, South Asia and Middle East, opines: "They all fall prey to what you call as ‘product of a wave’. Customers always reach out to this wave. And so business development and projects signed tend to be aligned towards where customers are reaching out to you from."

But the acquisition pattern in the last six months, as he adds, shows a different wave of capabilities being fostered. This includes manufacturing, product development, retail, healthcare etc and reflects a very strategic drive to create competencies in these areas.

It would take some time to de-risk, if so, from the US as everything said and done, US is the biggest consumer across the globe though geographical strategies would undergo change.

In the view of Dr. Ganesh Natarajan, deputy chairman and managing director of Zensar too, we would see bigger M&As next that would be across the board and not just tactical acquisitions that have happened so far. "New acquisitions would completely change the capabilities," he says.

Over dependence on banks is facing some lull but in medium term, other sectors like insurance and retail are growing, according to him. "A wider portfolio always helps." For Zensar, that itself started diversifying geographically, the pay off has been remarkable.

The US slice has come down from about 75 per cent to 55 in the last three years and areas like South Africa, Asia, Japan, etc are showing promise. There would also be change in offerings as traditional bread-and-butter areas like development work or ERP would slow down but real value-addition work would come up.

As Pari Natarajan, CEO of Zinnov Management Consultancy notes, it would be tough to compete for companies that operate on headcount only.

"They have to provide value and move up to areas like IP, frameworks and solutions. The focus on particular niche areas is the need of the hour." With BFSI services contributing approximately 40 per cent to the total IT BPO export market in India, the collapse of the financial services biggies will have direct revenue impact for sure.

Troughs in the financial sector witnessed by the merger of Merrill Lynch with Bank of America, acquisition of Bear Sterns by JP Morgan Chase and the fate of Lehman Brothers, would alert major Indian vendors like TCS, Wipro etc to squeeze revenues from other verticals which will now receive increased attention, points out Ekta Aggarwal, Industry Analyst, ICT Practice, Frost & Sullivan, South Asia and Middle East.

"Hence IT players in India are going to be cautious while accepting business from leaders in the financial sector." It’s clearly time when portfolio management would no longer be a just a subject but a zeitgeist that would flow across in this time of a tempest.

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