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Capgemini’s acquisition of Altran in June made waves in global markets and surprised some analysts, yet it hardly came out of the blue.
The move is representative of an ongoing trend that’s seeing growing success for French companies such as Altran that leverage Indian global service companies with enthusiasm and drive, helping them to stay competitive. By contrast, German organisations appear to be languishing in the doldrums when it comes to such potential, either unwilling or unable to change their business models to take advantage of India’s move up the value curve.
The most prominent French companies – including Publicis, BNP Paribas, Societe Générale, Renault-Nissan, Airbus and Capgemini – employ a total of about 226,000 full-time employees in global delivery centres in India. By contrast, German companies – including SAP, Bosch, Deutsche Bank and Siemens – employ a total of just 63,000. It’s a significant disparity, but why?
Public listing is a major reason for French companies’ more aggressive use of Indian expertise. According to Peter Schumacher, CEO of management consultancy Value Leadership Group, “these French companies are all global businesses, all the biggest companies – they operate around the world, compete around the world and they are listed companies, hence they are measured against other companies by the financial community”.
By contrast, a higher proportion of German companies are privately owned, and therefore not subject to such intense shareholder pressure. In some circumstances, this can be advantageous, but the lack of constant impetus to stay ahead of emerging trends can be highly damaging in the long term.
India’s value to global companies
But why India and why now? There are several reasons why international companies are sitting up and taking more notice, especially in the engineering world. A major reason is the clean-sheet approach. In India there’s no legacy in terms of manufacturing and engineering methodology, which means there’s more open-minded thinking about ways in which to solve problems.
Indian employees in these sectors are also substantially younger on average, which tends to make them more open to new ideas and new collaboration technologies.
Peter Schumacher, Value Leadership Group
“You can’t really successfully apply the tech of 10 to 15 years ago to what’s going to happen in the future,” said Schumacher. “In India, there’s no such legacy: young people are eager, ambitious, incredibly driven to do well and solve problems. Workers there today are making more in a month than their parents made in 10 years.”
Related to this, there are enormous efficiency gains to be achieved by establishing engineering footholds in India. For some international companies, shifting operations to India is one of the largest efficiency drivers of their business.
Additionally, particularly in the automotive/engineering space, there is a significant need for IT expertise, and currently there’s a dearth of talent in France in science, technology, engineering and maths (STEM) disciplines. Engineering companies cannot get new people fast enough, yet they need to be able to scale up quickly to respond to competitors. It’s not practical to gear up in five years; that has to happen now.
Some French manufacturing businesses are also expanding their markets into India and Asia more generally. Price points in the developing world are lower than in France, so if they carried out all their engineering work in France or Germany at a high price point, the end product price would also be higher and therefore not competitive against Indian and Chinese companies. It makes more sense to design and build in India wherever possible.
As a result, Bangalore already has more office space than Shanghai or Singapore – 150 million square feet and adding 15 million square feet per year dedicated to IT and engineering services.
“The French services companies have benefited enormously – lower cost, higher profitability, access to new markets (US), faster growth, new services, new organisational capabilities,” said Schumacher. “They have reinvented themselves. In contrast, German companies have been much more reluctant with regard to services from India.”
Zooming in on IT services, and engineering in particular, a major competitive shift has taken place in the past 15 years or so. Indian companies have made significant headway into Europe. For example, in the European IT services space, Indian giant TCS now has revenues of $6bn in Europe annually and has become a $120bn company, equal with Accenture. It’s growing fast, helped by pricing some of its services well below those of its competitors.
This has taken some European companies by surprise, leaving them with a choice of remaining niche players, dying, or embracing the global delivery model.
European firms taking a risk
Capgemini is one of the few European IT services companies to take advantage of the opportunities offered by India. By doing so, it has become more competitive and also grown its platform into the US. It has acquired various Indian companies, and also French companies with significant Indian presence – such as Altran – to do this.
By contrast, German companies tend to be far slower to respond to such changes in the international landscape. Schumacher gave the example of T-Systems, which “dabbled with plans for India but never fully committed to them, ending up selling that part of the business to Cognizant”.
T-Systems’ new CEO is well aware of the need to focus on India to become more competitive, but after 20 years of delay, not to mention Germany’s strong unions blocking such innovation, there’s a lot of catching up to do.
The German economy is, on the whole, slow, sluggish, conservative and resistant to change, and new processes take a long time to learn how to do well. It’s a difficult challenge to manage remote teams, especially across different cultures. So even if German industry wanted to try to catch up with the French in India, that’s not going to happen overnight. There’s a learning process to go through and some seriously tough conversations to be had with unions.
Meanwhile, French companies such as Capgemini are likely to keep moving forward, pulling even further ahead of their German counterparts. Caution is understandable in business but, as Schumacher puts it, “sometimes the safer bet is to take the risk”.
Read more about global delivery in India
- Oil giant Shell is the latest large business to announce plans to insource its IT operations at a delivery centre in Bangalore, India.
- Apple announces it will open a development centre in one of India’s fastest growing technology hubs, in the city of Hyderabad.
- Technological development and changing model for offshore business services and IT could threaten India’s dominance.
- Sat-nav maker TomTom invests in its Indian technology operation to increase innovation in a move that mirrors that of other corporates.