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Home > Business > Business Headline > Report

IBM, Citi deals confirm 'economics first' theory

Parvathy Ullatil in Mumbai | April 13, 2004 08:49 IST

You can't argue with economics, seems to be the message the United States-based multinationals are sending out to the anti-offshoring lobbies in that country.

With two acquisition deals worth Rs 1,250 crore (Rs 12.50 billion) involving global giants IBM and Citigroup being struck in the last seven days, India's status as the offshoring hotspot has been reconfirmed.

Though the strategic reasons for IBM's acquisition of Daksh and Citigroup's buyout of the remaining shares in e-Serve are not the same, the underlying message of better economics is loud and clear.

" It is pure economics. Global MNCs will move to where it makes more business sense, unaffected by political pressure. These deals are just a testament of what India can offer," said an industry observer.

IBM picked up Daksh eServices, one of India's largest third-party vendors in the BPO space, hoping to enhance its ability to deliver CRM and back-office services to its clients in various industries.

This acquisition is pegged at Rs 700 crore (Rs 7 billion), while Citigroup has coughed up a neat Rs 550 crore (Rs 5.50 billion) to buy back the remaining 53.66 per cent in eServe, an IT-enabled services company functioning in the financial services sector.

Both IBM and Citigroup have big plans to ramp up their business in the country through their newly acquired arms.

And that is not all. General Electric, the global giant that paved the way for most other MNC offshorers, recently took the outsourcing rumpus to its shareholders when it requested them to quash a resolution raised by a US-based pension fund challenging GE's outsourcing business.

GE has also expressed it apprehension on the impact that US presidential candidate John Kerry's stance on the offshoring issue will have on its business and profitability.

Companies such as the Cincinnati-based Convergys Corporation, a multi-billion billing and customer services giant, have announced plans to double their Indian operations.

And Standard Chartered, Sutherland Technologies, JP Morgan Chase, HSBC, Morgan Stanley and Goldman Sachs have already set up shop in India and moved a substantial part of their business processes to these centres.

But does all this action in the BPO sector spell bigger trouble for India from the anti-offshoring lobby?

"US is a capitalist economy and IBM and Citigroup are big blue chip companies and big contributors to the US economy. Politicians cannot afford to antagonise companies of this stature. I don't think this will intensify the backlash in any way," said an analyst.

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