Time to specialise, M&A will drive future growth

"It is time to specialise," says Vivek Pandit, partner, McKinsey and the Nasscom-McKinsey study adds, "Companies will have to choose where and how to compete."

This means that companies will have to decide precisely which services to specialise in, which industry to enter and which geography to operate in. For example, an IT company can enter the BPO area in the retail and banking sector in Chile.

Pandit said, a company's objective must be to provide a range of services and it should concentrate on giving end-to-end products.

From the present trends, it seems that in another five years inorganic growth will be a key factor. This is evident from the fact that last year in the IT sector there were almost 253 M&As and this number is bound to increase.

If M&As were to rise it becomes imperative that the companies have deal-making abilities like pre-merger analysis and post-merger management. There also arises questions like: How will the companies adjust to the cultural variations and will they be able to offer global salaries? How will they recruit people and will they be able to work like a de facto local player in a new geography?

"These are important for the companies planning to go in for M&As across the globe as part of their growth strategy," says Prashant Gandhi of McKinsey and Company.

On an average, a global company will employ at least 2 lakh people by 2010. Presently, the issue is managing 30,000 people but to manage a workforce of 2 lakh across various countries and from different cultures will require managerial skills of a different order.

Gandhi added, the growth of a firm will be decided by its returns, margins and its ability to sustain investments. In the BPO space, third party players are a competition to captives and MNCs and the challenges for the sector are transition from voice to non-voice work.

"BPO re-engineering is difficult," says Pandit. At present, captive BPOs hold a share. The report says, captive BPOs must transform as there are pressures on margins and this will force them to outsource to third party.