Karvy Global  | Newsroom

NOVEMBER 2006

Capgemini and Kanbay: Outsourcing Powerhouse

By Savita Iyer,
Securities Industry News,
November 20, 2006

The top end of the information technology outsourcing market will get more competitive early next year when global consulting firm Capgemini completes its $1.25 billion acquisition of Kanbay, a deal that points up the importance of the North American market and the financial services industry in the IT services marketplace.

When the merger was announced Oct. 26, Capgemini and Kanbay executives touted the combined entity as "a global IT services powerhouse with significantly expanded service offerings and a leading financial services and consumer goods franchise." Paris-based Capgemini, which has 65,000 employees, will gain significant resources in India that are owned by Kanbay, a "virtual" corporation with headquarters in Rosemont, Ill., 6,700 employees, and a client list that includes Citigroup, HSBC, Lehman Brothers, Merrill Lynch & Co. and Morgan Stanley.

Capgemini is aiming to have 35,000 full-time employees in the India offshore sector by 2010, up from a combined 11,500 at the end of 2006, generating $300 million in financial services industry revenue, four times the current total. Financial services--capital markets, insurance, payments and other functions--accounts for 22 percent of global IT services revenue and is the fastest-growing vertical market segment, says Salil Parekh, Capgemini's North American CEO, who adds, "In terms of financial services outsourcing, the combination of Capgemini and Kanbay is quite deadly. The merger is a natural fit, and as a result we can take advantage of some best practices and efficiencies by having additional people offshore while at the same time maintaining our position as the industry's bellwether in financial services, thought, leadership and expertise."

Industry observers agree it will be a powerful combination of complementary organizations capable of competing against any big-league financial industry outsourcing provider. A leader in that category, IBM Corp., has 20,000 people in India, Capgemini noted, while Accenture has 12,500 and Electronic Data Systems Corp. 9,000.

Parekh says that the financial sector continues to expand, with areas such as credit-card processing and insurance policy administration growing at double-digit rates in North America, Europe and in emerging economies. "We believe the [financial services] market will remain lucrative for years to come," he says.

Adding Kanbay, whose founders in 1989 were Australian, Canadian and Indian nationals, Capgemini will be able to offer integrated, single-point solutions with its own strategic consulting and advisory services and Kanbay's IT expertise. And Kanbay's established, blue-chip financial institution clients will reenergize that part of Capgemini's business.

Capgemini CEO Paul Hermelin said last month that Kanbay will "enhance our global banking, financial services and insurance practice, particularly in North America and India, where Kanbay has over 5,000 associates. The acquisition also gives us valuable capabilities in the consumer and industry products, telecommunications, media, life sciences and travel-and-leisure verticals."

Capgemini and Kanbay will be in a stronger position to compete not only against the IBMs and Accentures, but also Indian IT behemoths Infosys Technologies, Wipro Technologies and Tata Consulting Services (TCS), says Purna Pareek, founder and CEO of Fremont, Calif.-based Advice-America, a provider of financial planning software to the wealth management industry that has a software development center in Bangalore, India.

As strong and competitive as Capgemini and Kanbay look on paper, they will heat up competition in a market that is nowhere near the saturation point, says ARthur Flew, CEO of Karvy Global Services, the Hyderabad, India-based business process and knowledge process outsourcing subsidiary of integrated financial services institution Karvy. Therefore, the entry of one more large-scale player just underscores that "there is still a lot of room in the financial services space as it keeps on growing," Flew says. "There is certainly room for [Capgemini] to come in and pick up large clients, even if companies like Wipro, TCS and others are well-entrenched in the business."

Parekh is confident that Capgemini stacks up well against both multinational and pure-play Indian competitors because of its focus on "innovation, industrialization and intimacy with clients." Capgemini's transformation consulting and account-executive relationships go back years, he says, providing a leg up in the competition. The company's emphasis on customized solutions at the industry level, designed to drive innovation, differs from the "one size fits all" approach that some of the multinational companies (MNCs) bring to market, in Parekh's view.

"With the Kanbay acquisition, we will now have the highest percentage of an MNC's workforce based offshore, as more than 25 percent of our 63,000 employees are outside North America and Europe," Parekh says. "Our industrial platform is credible versus both groups of competitors, MNCs and Indian pure-plays."

The merger underscores how IT services, and their providers, are scaling up. "The whole profile of service providers in India is changing," says Flew. Even as demand from the financial industry creates an opening for new providers, the bigger guys are now going to dominate the business, he says.

Parekh believes the key is domain expertise combined with a wide range of technology, consulting and outsourcing solutions. "As is the case with any company that wishes to remain successful and an industry leader, Capgemini is always looking for ways to strengthen its position in the markets and industries in which it operates, whether organically or through acquisitions," he says.

"Capgemini shares our vision and strategy," Kanbay chairman and CEO Raymond J. Spencer, who will be joining Capgemini in a senior management role, said when the merger agreement was announced. "Thus, the deal represents a continuation of our existing approach. In addition, the two organizations will benefit from complementary business philosophies and cultures."