East versus West in the marketplace — who will win this duel to the death?

If there is such a thing as bringing closure to a rumor that was rampant at the end of last year, let me try to do that by saying it is highly unlikely that one of the top three Indian services organizations, Tata Consulting, Infosys or Wipro will buy French owned Capgemini.

The worldwide rumor mill was rampant with speculation.

The Economic Times of India had this to say:

“ET has learnt that Wipro was reportedly in talks with CapGemini, but may have decided against the deal as an acquisition of this size was difficult to digest. However, this shows Wipro’s intent to pursue billion-dollar plus acquisitions and if sources are to be believed, the third-largest Indian IT services exporter could be gearing up for a big byte. Sudip Nandy, chief strategy officer, Wipro, merely said, ‘It is market speculation.'”

Here’s the full story from ET.

France’s Le Figaro also claimed that Wipro was about to make an imminent acquisition of Capgemini.

“Selon la presse indienne, Wipro prépare une OPA sur la SSII française, qui bon-dit en bourse” said the headline.

The story followed with this:

“Wipro, numéro trois de la sous-traitance informatique en Inde, pourrait faire une offre sur Capgemini avant fin janvier, rapporte le journal Hindustan Times. L’offre valoriserait la société française à près de 4,9 milliards d’euros. Selon le quotidien qui cite des sources bancaires anonymes, les banques Citigroup et HSBC ont eu des discussions afin de finaliser le dossier avant la fin de l’année..”

See for the full story.

On this side of the Atlantic, InfoWorld got into the act early in the summer. Here’s an excerpt from that report.

“Infosys declined to comment on the reports. “We do not comment on market rumors,” a spokeswoman for the company said Friday. However, Infosys, in Banga-lore, indicated at its analyst conference in April that it may consider an acquisi-tion.”

Again, here’s the link.

I figured I needed to talk to someone that understood the DNA of these companies to get a better idea if these rumors could possibly be true, because if true such an acquisition would represent a watershed moment in what is fast becoming more and more of an economic duel for supremacy between east and west.

I gave Frances Karamouzis, vice president of research at Gartner a call.

Karamouzis says acquiring Capgemini is not the sort of thing any of the three major Indian services company would likely do for a number of reasons.

One they tend to buy niche companies that are focused in a particular industry or especially in the European market have an obvious geographic footprint or focus on a particular service area.

To that end Wipro acquired Enabler in Spain, a company that focuses on the retail market.

“Indian companies have shied away from mega acquisitions like Capgemini and Capgemini would not buy Wipro because they can’t afford it,” Karamouzis told me.

So while Wipro, InfoSys and Tata are the still rising stars with huge market caps with double and triple growth rates over the last 20 quarters, according to Karamouzis, they are still reticent to make a really bold move.

As I said in a recent InfoWorld feature [/article/07/10/09/Indian-companies-buy-US-consultancies_1.html ] the Indian companies want to complement and penetrate into spaces where they currently don’t have the expertise but they are acquiring very selectively.

Karamouziz also tells me they are leery of a cultural clash that they fear would ensue if they made a huge acquisition that required a behemoth effort to integrate a large western management team.

The original Indian formula still works: labor arbitrage from a low cost destination. Capgemini with its headquarters in a high cost destination and with a high cost of labor does not fit into that formula.

The western companies also have their own operating style or formula, especially in the U.S. Here the bold move is most admired. It is a full speed ahead and damn the torpedoes mentality. Slow and steady does not win the race and is not much admired.

My question is will this reluctance on the part of the Indian companies to take a giant leap be their undoing? Do they need to be bolder or will the old formula continue to work?

On the other hand is the American style–see Oracle, IBM, HP–making big bold acquisitions and worrying about how to integrate the different corporate cultures later, the better strategy?

Karamouzis, speaking for Gartner predicts that two or three of the top Indian companies will edge out some of the current Western-based giants as market leaders in services to the enterprise.

“We predict two or three of them will penetrate the global top vendors,” said Karamouzis.

However, the longer it takes to penetrate the global top vendor service market, the more time the current market leaders have to reassess and reevaluate their strategy.

This is indeed a duel between East and West, fought out in the business marketplace but with each side bringing its own cultural baggage along with it.

It is an interesting fight to watch but we may have to wait a few more years to see who wins.