Indian firms could buy niche players in engg services

Nasscom to engage research firm to explore opportunities

IT--enabled engineering services is a multi-billion dollar opportunity and one way Indian companies can tap it is by buying niche players abroad, top executives of some Indian IT firms told Business Standard.

Indian firms, "as part of their larger M&A strategy," can seek to acquire niche players to boost their engineering services business, Ramalinga Raju, founder and chairman of Satyam Computer Services said on the sidelines of a Nasscom interaction on engineering services. "They will at the same time continue to grow 'organically'," he added.

Nasscom will soon "engage an international analyst firm" to do a "granular study" on what Indian firms can do to tap this business, said S Ramadorai, chief executive officer and managing director of Tata Consultancy Services and current Nasscom chairman.

The market for such work is between $7-12 billion, said Kiran Karnik, president of the National Association of Software and Services Companies (Nasscom). But exports of IT enabled engineering services accounted for only $500 million in fiscal 2005.

"At the Paris Air Show," Ramadorai said, "we saw that the bulk of the engineering services contracts outsourced went to firms in the UK, France, Germany and the US."

In this area hubs and clusters are very important. For instance, the Airbus A380 aircraft alone accounted for an R&D budget of some $12 billion, and the aircraft's list price is $250 million.

"Most of the engineering services outsourced as part of the project went to small and big firms in UK, France, Germany and Spain."

There were some 1,200 vendors and some of the work they do can be done in India. "It is possible that they could outsource work to Indian firms or set up their own captive units in India," Ramadorai said.

The opportunity was mainly in the aerospace and automobile industries. TCS, the country's top IT services exporter by sales, already has engineers working in both domains.

The firm has also fostered collaborations with public sector advanced research organisations such as the National Aerospace Laboratories in Bangalore, and is actively looking at academic and industry engagements abroad.

"The bulk of engineering design exports are from the captive centres set up by foreign companies such as General Motors," Harish Mehta, chairman and managing director of Onward, a Mumbai-based niche design firm told Business Standard.

An example of IT-enabled engineering services is redesigning a car seat "to suit an Indian family", Mehta said.

There are both Indian and foreign firms that do such specialist work. "These acquisitions work both ways - a multinational firm could buy an Indian company and vice versa", Mehta said.