Top ten IT services vendors target global sourcing

Capgemini's $1.3bn takeover bid for Kanbay International and EDS' continued rebalancing of its international workforce have put the spotlight on the increasingly aggressive global sourcing strategies of the world's largest IT services organizations.

Six of the top ten vendors now have more than 20% of their workforce based in low-cost delivery locations, with Capgemini, Accenture and IBM Global Services the most aggressive. There are no signs that they are going to rest at these levels, with many being open about their expansion plans. EDS plans to grow its offshore workforce from 30,000 employees to 45,000 by the end of 2008, and IBM has committed to tripling its group investment in India to $6bn over the next three years.

These companies are being forced to deliver more projects from low-cost locations in order to meet the challenge of India's major software services firms, which have expanded at such a rate that they are now able to compete for large, billion-dollar projects against the established Western players.

The number of Western vendors acquiring offshore delivery operations has increased significantly in 2006, with suppliers realizing that buying mature Indian service providers present a risky, but fast way of adding low-cost workers.

Four of the top ten IT services have made acquisitions designed to quickly build up their offshore resources in India during the last couple of years. IBM Global Services got the ball rolling with its $160m purchase of BPO vendor Daksh in April 2004. In February this year, Fujitsu's US-based consulting arm added 800 staff at two Indian development centers through its purchase of Rapidigm, and Capgemini's move for Kanbay last week came four months after EDS launched a $380m takeover of Mphasis.

Although there has been much discussion of how China will mount a major challenge to India's position as the premier global sourcing hub for major IT services firms, the current headcounts of the top ten firms in each country shows that China remains some distance behind. The vendors have a combined 109,000 staff based in India, which equates to 14% of their total workforce of 805,000. In contrast, just 6,000 or less than 1%, are based in China.

This balance seems unlikely to change in the near future. Fujitsu and NTT Data will continue to use Chinese centers to support their Japanese client base due to the language and cultural affinities, but the other top eight services firms remain more bullish about their Indian headcount growth targets than they are about China. Capgemini, for example, is aiming to have 35,000 staff in India by 2010, and Accenture plans to increase its Indian headcount by more than 50% in its current fiscal year to also take it to around 35,000. None of the top ten vendors are talking about similar targets for the Chinese divisions, and most remain more interested in selling to the country's larger corporations and the local operations of multinationals, than using China as a sourcing hub.

Brazil and Costa Rica are emerging as the top ten vendors' favored offshore hubs in Latin America. EDS has close to 8,000 staff in the country, although the majority are based on domestic accounts, while Accenture has around 2,500 at a delivery center in Sao Paulo, primarily supporting clients in the US and Iberia.

In Eastern Europe, Hungary appears to be emerging ahead of the Czech Republic and Poland as the favored location for the top ten services vendors to deliver low-cost support to Central and Western European clients.