Francois Enaud, Steria CEO. Interview at NASSCOM India Leadership Forum 2008,
15/02/2008
M&A works when there is a clear rationale: to improve time to market, to close gaps in capability, to gain competitive strength. I expect that Indian-headquartered organisations will increase the competitive pressure in Europe

1. What made you come to India when you were looking for a suitable outsourcing partner and what was the rationale for your acquisition of Xansa?

We already had nearshore locations in Poland and Morocco but our clients were increasingly asking us about India and we were conscious that our European competitors were moving there. We could see the opportunity but also realised that we needed to move rapidly. Having initially considered the usual market entry options, we soon decided that organic growth would take too long. We had also considered setting up a joint venture with either a local player or Xansa, which was a company we were partnering with on a project at the time. We knew the quality of their Indian operations, their excellent UK client base and their leading expertise in BPO and in particular Finance & Accounting. We have been especially impressed by their first class campuses and the maturity of their integrated delivery model, and last but not least, we had an outstanding cultural fit. So, we realised Xansa represented the ideal solution and we moved quickly to the acquisition.

2. How have you benefited from this acquisition?

With the addition of Xansa to the Group, Steria has strengthened its position in the Top 10 of IT services companies in Europe.

Steria has benefited from Xansa's acquisition in 4 ways:

* We have strengthened our position in the UK market: Steria has become the 9th player on the UK market and the 4th in the public sector. The UK IT market being the largest in Europe, our reinforced presence in the UK is key for increasing our leadership in Europe.

* We have added Xansa's BPO expertise to our range of capabilities. BPO is a genuine mid-term growth enabler and fits in with our strategy to support our clients in the transformation and management of their business processes. With Xansa's established position as a leader in European Finance & Accounting Services, this allows us to bring this service offering to a wider range of our European clients.

* With Xansa, we benefit from what we consider to be the most mature delivery model around with a seamless onshore-offshore organisation. Xansa has been working and improving on the concept for the last 10 years.

* Synergies are already being created with the development of offers, stemming from India, which will then be launched throughout the Group via our local sales forces.

3. Do you believe India can sustain its leadership within the global BPO realm?

I do. I have three reasons for such confidence.

* First, India is the most advanced place in the world for IT industrialisation; this carries huge first mover advantages for example scale. "Brand India" is world recognised and every other contender seeks to learn from and emulate Indian's success. This has a lot to do with the single voice with which India promotes itself ? and in our Industry this is co-ordinated and driven by prominent role of NASSCOM.

* Second relates to the war for talent. This has two dimensions: numbers and skills. In the former, by raw population, India is only just behind China. Both are investing heavily in education to raise the skills and distribute that educational opportunity to a wider proportion of the population. Both India and China will win out against all other countries. But India is more connected and multicultural.

* Third, Quality. India has placed quality at the heart of its business model. Again it differs to China in that its export market is more developed than its internal market. To prove itself, Indian companies have invested in methodologies, best practice and systems and sought to evidence the successful outcomes through internationally recognised accreditations.

But the world does not stand still. India cannot rest on its laurels with a job well done. On all these dimensions it faces real challenges. India must open to the rest of Europe. One mean of achieving this is via partnerships between European and Indian universities, engineers & trade schools. China has an important domestic market and India can help make the link with China and the rest of Asia. Education and language are two challenges that, once solved, will move India up the value chain. The last lever for India to keep growing is innovation with the support highly skilled and multi lingual teams. I remain strongly confident in India's ability to adapt its business strategy; however, to sustain world leadership carries significant challenges.

4. What are some of the challenges India faces within this segment?

One key challenge will be languages. The UK benefits most, after the US, from India because of their common use of English. This can also work in Europe as many companies, including Steria, have chosen English as their business language. But adding capabilities in other languages to India-based teams can benefit India in the long-term. Because unless India can separate the language components from aspects of IT and BPO, nearshore destinations like the latest EU entrants will benefit from their multi-lingual competencies.

5. Do you think mergers and acquisitions will be a key way forward for companies, especially in Europe, to make an impact in the BPO domain?

Well I have explained our rationale for an acquisition rather than alternative market entry strategies. It would depend on the individual organisations vision for global sourcing and strategy. M&A works when there is a clear rationale: to improve time to market, to close gaps in capability, to gain competitive strength. I expect that Indian-headquartered organisations will increase the competitive pressure in Europe, with the dollar and sterling weakening. The demand side for BPO services from Europe is growing. With these pressures, I am sure we have not seen the last M&A in Europe.

6. What is the kind of growth you expect to see in the managed services market?

Large outsourcing deals are in a minority. Clients prefer selecting a few key IT services providers and working with them for specific missions. Clients prefer focus and excellence rather than generic and scale. I think that the managed services market will largely benefit from BPO and from companies such as Steria that can offer end-to-end project management, whether it is managed by on-, near- or offshore resources, in a transparent way for the client.

7. Is this sector going to open up significant business opportunities for outsourcing services providers?

Yes, for those who will be able to manage their clients' business processes, hence creating value for them. HR and F&A are the first processes to benefit from being outsourced, and I believe in a growing demand for vertical BPO from our clients due to the increasing pressure of competition and international regulations (SEPA, MiFID, anti-money laundering laws?). In the banking sector, this means for example managing business processes like card management. Another market where Steria will be able to extend its footprint is by adding offshore to our existing nearshore capability in Poland for remote infrastructure management (RIM). RIM outsourcing is a core growth market.

8. Steria has implemented a unique model of participative governance allowing employee shareholders to have a say in strategic decisions, which it is promoting to its customers. Can companies successfully combine market economics and human values?

I think market economics and human values are not opposed, especially in a company like Steria where our business is our people and vice versa: our assets lie in the people that produce the company's value everyday. As a people company, our engineers and consultants are our assets. Our model gives them the opportunity to drive Steria's future and benefit from the value they create.

To successfully combine market economics and human values, companies need to be creative. For example, we had to choose the right company status that would enable us to implement our participative governance model. This is why Steria is a partnership limited by shares, as it is the only legal form covering this type of project in the case of a listed company. Creativity is also needed to promote that model across countries with different fiscal laws.