Forrester, Prediction, Outsourcing, Consolidation
Forrester expects sweeping consolidation in the outsourcing industry
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In response to the recent spate of outsourcing firm buyouts, Forrester Research, in its latest research report states that global outsourcing industry could face even more sweeping consolidation in the next two years, mainly driven by low-cost global competition and broken business models.
It says that even the top-tier Indian firms will have to rely on acquisitions to compete with global giants like IBM, EDS or CSC.
The report titled: “Are Barbarians At The Gates Of Outsourcing?” delves into the potential buyouts of global outsourcers by private-equity firms as well as the trend among the outsourcing industry's long-standing leaders' scramble to buy or be bought. It indicates that leading equity buyers believe there's an opportunity to make money fast in the outsourcing space, and that mergers and acquisitions could dominate this space mainly due to double-digit growth in new deals, long-term contracts, and the popularity of outsourcing.
Further, given the recent hostile takeover attempts in this space globally, the report sets expectations of seeing many of the leading outsourcers making aggressive moves to protect their businesses. These strategies will range from acquiring other competitors to acquiring their own stock. Already, there are firms that have made moves on these lines.
For the top-tier Indian firms, the report asserts they will likely have to acquire either BPO firms with vertical industry knowledge or - infrastructure outsourcers with experience of managing servers, desktops, or networks if they are going to compete head-to-head with top global firms like IBM, EDS, and CSC. It further states that 'The level of experience required before a customer will trust its operations to a third party' is something the Indian outsourcers do not have yet. So they will likely have to buy their way in by acquiring firms - or similar firms - such as Getronics, Siemens Business Services, Unisys, or even French service provider Bull.
The report ultimately concludes that in a leveraged buyout scenario of a major outsourcer, shareholders and the private equity firms will emerge likely winners; but the universal loser in all of this will almost certainly be the outsourcing customer.
To purchase the report on the Forrester site, click here.
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