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Indian Vendors Go Global

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As India's nascent telecom industry grows, the country's vendors are becoming more competitive internationally, signing bigger and bigger deals and picking up investment dollars, too. (See India's Telecom Startups Reel in Cash.)

According to a KPMG International study, India's telecom sector saw 21 acquisitions in 2005, with a combined value of $1.8 billion. Many of those were made by domestic companies acquiring interests abroad -- the latest example being IT services firm Wipro Ltd. 's acquisition of Austrian chip developer NewLogic Technologies AG for $56 million to complement its portfolio of wireline and wireless intellectual property cores. (See Wipro's Wireless Expansion.)

The growth of the domestic market this year has given vendors a springboard into the international telecom sector, and companies like Mahindra British Telecom Ltd. (MBT), a provider of OSS, BSS, and remote network management software, have seen more of their business take place outside India -- it teamed with Azure Solutions Inc. to provide a billing system for StarHub in Singapore and announced a global alliance with Australian vendor Clarity, for instance.

"Mahindra is a good example of an Indian company really becoming a global player, which is what companies will need going forward," says Raj Judge, a partner at law firm Wilson Sonsini Goodrich & Rosati, and head of its Indian practice group. Judge says he was astounded to see MBT buying a U.S. company: It acquired Texas-based Axes Technologies last month for $54 million. (See Mahindra-BT Picks Up Axes.)

MBT derives 70 percent of its revenues from BT Group plc (NYSE: BT; London: BTA), which holds a 43 percent stake, but that's down from 85 percent 18 months ago and the company plans to make it 50 percent in the next two years.

"The significant majority of the domestic companies that have been formed have all realized that they need to be global players," says Judge. "If they're not global competitors they won't survive." The domestic market is mushrooming, but it's also highly price competitive and demanding, he says. "If a company can actually succeed in that market they have an amazing platform for the global market, and they are recognizing that's what they need to do."

Judge notes that Indian companies tend to have a "different psyche" to their Western counterparts. "They really do have this sense of confidence that they feel like they can" compete on a global level.

Bob Kondamoori, CEO of optical transport and access equipment vendor Xalted Networks says India's "very brutal" tendering process, which focuses on getting "the most features at the lowest price," gives vendors an edge in other emerging markets: "It's fiercely competitive because there's all the usual suspects -- Alcatel (NYSE: ALA; Paris: CGEP:PA), Ericsson AB (Nasdaq: ERIC), Nortel Networks Ltd. -- plus more. So if you can compete against them, meet all the eligibility criteria and be cheaper than they are, it instantaneously gives you an edge to compete internationally -- places like Indonesia and the Middle East become low hanging fruit."

Xalted Networks, which sells IP DSLAMs and SDH multiservice access platforms as well as OSS software, generates around $35 million in annual revenues, and has OEM partnerships with the likes of Alcatel, Siemens AG (NYSE: SI; Frankfurt: SIE), and UTStarcom Inc. (Nasdaq: UTSI) for contracts in Europe, Asia, and Latin America.

Likewise India's other major equipment vendors, including Tejas Networks India Ltd. , Midas Communication Technologies Pvt. Ltd. , and Telsima Corp. , are branching out with partnerships abroad. "More or less every single operation in India has relationships with partners," says Tejas CEO Sanjay Nayak, noting that the vendor has "one or two" unannounced partnerships in the U.S..

"A lot of Indian companies have a huge U.S. presence," adds Xalted's Kondamoori. They include Wipro, which reported revenues of $568.2 million for the quarter ended Sept. 30, of which $430.6 million came from its global IT services and products unit. (See Wipro Reports Q2 Profit .)

With India only recently emerging as an attractive telecom market in its own right, "building a company in India for India alone was not interesting enough" for investors, says Tejas's Nayak. But as telecom equipment has become more standardized, he says, "the location of the company doesn't really matter... as long as it has good technology with a local presence," giving India-based companies the opportunity to expand abroad. And with the rigorous conditions that domestic carriers impose on vendors, Indian companies have a rigorous training ground.

— Nicole Willing, Reporter, Light Reading

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User Rank: Light Beer
12/5/2012 | 4:10:22 AM
re: Indian Vendors Go Global

Wipro's $56 million acquisition of NewLogic is still a tiny deal, albeit being the largest overseas acquisition by an Indian IT company. If you look at the market caps of the 3 Indian IT 800-pound gorillas (TCS, Infosys and Wipro), they are well north of $15 billion each, and quickly approaching the market cap of EDS! So the acquisitions these IT companies have been making is, lets say, almost inconsequential to their market value.

There is a very good reason for this. While these Indian companies are no doubt comfortable playing in the international arena, they have not matured yet in the field of risk taking. They are much more comfortable growing their businesses organically (which they have been doing at 30%+ rate per year). They are not comfortable (yet) embracing the diversity of cultures, business practices, management styles, control structures, language barriers and local ecosystems that come with new acquisitions. So don't hold your breath waiting for mid-cap plays coming out of these IT companies any time soon! It is more likely to be a process of organic build + slow accumulation of new assets/products that enhance their portfolio and platforms.

On the telecom side, Indian vendors have a huge untapped market right at home...there is no need to look outside for business. While the Indian urban centers have something like 25% teledensity, the rural areas are at less than 2%. Couple this with the fact that 70% of India's population (like 700 million people) live in rural areas...decent market size?! The Indian government is putting initiatives in place to develop connectivity in these non-urban regions.

The regulatory authorities in India have started to realize that as communication services converge, so should the regulation around it. There is talk of a unified licensing system for fixed telephony, wireless and broadcasting. Interestingly, India is probably the only country in the world that has more CATV/DTH subscribers than telephony! Therefore, a unified regulatory framework could spur the provision of triple-play services on converged networks; whether those networks are owned by a CATV, telco or an ISP is not central to the potential market for vendors.

Indian vendors like Tejas and Midas have a good thing going for them...a great combination of market size, production cost advantages and technological parity (well, almost) with industry leaders. Its not so surprising that they are extremely competitive in India's "very brutal tendering process". Don't be surprised if these vendors follow in the footsteps of their phenominally successful IT compatriots.

User Rank: Light Beer
12/5/2012 | 4:10:14 AM
re: Indian Vendors Go Global
Great coverage Nicole. It is heartening to see LR finally reporting on the venture activity in India product companies and the burgeoning telecom market.

LR had always been a great source of info when I was in the US. The recent India coverage encourages me to tune in now that I'm back in India.

True, that the selling in the Indian market is "Baptism by Fire" for local vendors. Strategizing to sell all the bells and whistles at L1 (lowest price) is great excercise for cost reduction projects and a grinding training ground which could possibly make selling in other markets easier
User Rank: Light Beer
12/5/2012 | 4:10:14 AM
re: Indian Vendors Go Global
>Wipro's $56 million acquisition of NewLogic is still a tiny deal, albeit being the largest overseas acquisition by an Indian IT company

depends what you mean by IT - but Reliance bought FLAG for over 200 million.
User Rank: Light Beer
12/5/2012 | 4:10:14 AM
re: Indian Vendors Go Global
Nice post again Nicole
Would like to share couple of points.

1. Most of the large Indian telecom software companies have actually always been global. This becomes obvious if you look at the domestic revenues vs the overseas revenues (as mentioned correctly in the case of Wipro)

2. If you are however talking about Indian product companies then its a differnt story. If you compare the product vs service revenue mix of these companies you will notice that a large part of the revenues are invariably services driven revenues. This was actually by design - not an accident. In most cases the model was to capitalize on labour arbitrage and it helped scale multi billion $ market caps!

3. Agreed that many of these large Indian telecom software organizations actually had developed some IPR (protocol stacks, middleware, embedded functions, some applications, in some cases full functionality solutions). Most of these products were licensed to telecom equipment vendors abroad. There was a clear gain from this: Initial market traction and resulting services revenues which enable point 2 above.

4. Pioneering software products were never tried in the domestic market for long because of the lack of a domestic market - until recently. But now that the domestic market is becoming sizable and is rapidly expanding (wireless only - not broadband yet)it is going to be a market you cannot ignore.

5.In the meantime, local market requirments are stringent, competition is acute, price pressure is severe and business models are most revenue-share basis, the acid test will reveal how domestic product companies will fare.

6. Still, Indian IPRs have rarely made stellar successes from a global deployment point of view. Till now, it made sense to draw -global deployment - as a benchmark.

But as India adds 3million subs a month, the scales may tilt differently. It may be suddenly more important to have a benchmark mobile carrier in India as a customer: for both Indian as well as overseas telecom product companies.

Sridhar T Pai
Tonse Telecom
User Rank: Light Beer
12/5/2012 | 4:10:12 AM
re: Indian Vendors Go Global
"depends what you mean by IT - but Reliance bought FLAG for over 200 million."

Thats pure telecom. VSNL also bought Tyco for $130M and Teleglobe for $230M or so. They are on a massive global expansion plan. Integration will no doubt be a huge challenge over the next many months.
User Rank: Light Beer
12/5/2012 | 4:10:07 AM
re: Indian Vendors Go Global
another data point: PC sales are growing 35% and will be 4.7 mil this year. in future this will drive broadband growth. a half-assed DSL version of broadband is available in most cities for around $12/mon(Rs500)..rates somewhere between 128-256kbps.
PC prices have dropped to $250 and financing is available.
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