Services Firms Pair OffServices Firms Pair Off

U.S. and Indian IT-services companies are teaming to make a big play for the financial-services industry, considered one of the best growth areas for offshore outsourcing because of the high costs associated with white-collar labor and the heavy data processing that financial firms face.

In some cases, collaboration is taking the form of acquisitions. In late April, Wipro Ltd. of India announced plans to purchase American company NerveWire Inc. for $18.7 million in cash. Then U.S.-based Carreker Corp. and Majesco Software Inc., a subsidiary of Mastek Ltd. of India, formed Carretek LLC. And last week, Patni Computer Systems Ltd. of India acquired U.S. company The Reference Inc.

In all of these pairings, the goal is to provide financial firms with onshore consulting services in areas such as business-process outsourcing, IT strategy, and IT architecture design, and with the cost benefits of doing the work in India. "We will operate an onshore/offshore model that will give customers control and visibility into their operations," says Subhash Mukerji, the newly appointed president of Carretek.

Mukerji, also managing director at Carreker Corp., which specializes in IT services for financial firms, says the company launched a search for an Indian partner months ago because U.S. customers were asking for help in finding offshore development resources. "The reality is banks have traditionally outsourced a lot but not offshore; they need a bit of hand-holding," Mukerji says. "They want to know, 'How do we do this and what are the risks?'"

It's not only software-development work that financial-services companies are after. They're outsourcing business processes such as check processing for which they can expect to pay $7 to $8 an hour for a skilled clerical worker provided by Carretek, Mukerji says. That's several dollars less per hour than a company would pay a comparably skilled worker in the United States, he says.

The U.S.-India partnerships are expected to help IT-services companies grow business with midsize organizations, says Randy Snyder, president of Lyndhurst Partners Inc., a mergers and acquisitions consulting firm focused on the IT-services industry. "Many midsized companies desire to leverage the offshore model for the potential savings," he says. "However, given typical project size, these firms have a difficult time justifying the costs associated with the development and management of a direct offshore relationship." But having an intermediary--meaning a U.S. IT-services company--can solve that dilemma.

For Wipro, the NerveWire acquisition brings 90 U.S.-based IT consultants and experts in the areas of banking, high-tech, insurance, private-client services, security, and trading and investment management, plus 40 clients. The undisclosed amount Patni is paying for The Reference will provide the $188 million-a-year company with 44 employees and a leg up in its efforts to increase its business in the U.S. financial-services arena.

Leroy Davis, managing director at DecisionPoint International, an investment bank for technology services and products, expects more U.S. IT-services companies to follow Carreker's lead and seek out partnerships in India, the largest provider of offshore IT outsourcing, rather than wait for the Indian firms to come to them. The continuing poor economy and cost pressures are driving U.S. companies to secure such partnerships, whereas before they might have avoided them because of concerns about jobs moving offshore or fear that new partners could poach clients, Davis and Snyder say.

An important goal for U.S. IT-service companies seeking partners in India should be to do thorough due diligence, so they can assure customers they've selected viable, reputable partners. Because of the growth in IT services in India, "there are lots of guys shopping ideas around, some credible and some not," Davis says. U.S. companies "have to be careful who their partners are."