A Global Plan

Asian firms have a large target in their technology sights: The rest of the world. By Lauren Hilgers

Asia-based IT vendors have long maintained a focus on their own region, tailoring technology to fit the volatility and regulatory structures they found at home. In the past few years, however, a handful of companies have been taking steps outside of their own region. Companies like Japan-based Nomura Securities moved into technology through the acquisition of other financial services firms. India vendors moved up the outsourcing value chain and began attracting global clients. 

Now, as the global financial crisis continues to impact markets around the globe, these companies will be challenged to maintain their reputations, experts say. They will be pressed to avoid the turmoil that has taken so many companies hostage. At the same time, the shakeup could provide these companies with unexpected opportunities. 

"Overall, it has been very tough for Asian IT vendors to penetrate non-domestic markets as they have built most of their products suited for their own markets," says Sang Lee, co-founder and managing partner of Aite Group, a Boston-based research and advisory firm focused on finance and technology. New technology companies have to understand the needs of global clients as well as the regulatory systems for each new market they enter into, so they can provide risk and compliance support. 

Whether aiming at other developing markets, taking over existing Western companies or using outsourcing as a window, Asian companies are taking on these challenges. They're on the move across the globe. 

A Japanese Presence

Nomura has been active globally since it took over the company Instinet in 2007. An agency brokerage that operates a number of alternative trading systems (ATS) around the globe, Instinet was an early step into technology for Nomura. 

With the arrival of the 2008 financial crisis, Nomura took the opportunity to purchase Lehman Brothers European operations. While its first priority was to integrate the investment banking side of the business, the Japanese company also found itself the owner of Lehman Brother's European electronic trading platform. 

"This transaction will significantly extend our European footprint and international reach, enabling us to realize our strategy of delivering Asia to the world," said Kenichi Watanabe, the CEO of Nomura Holdings, in a press statement. 

The company has announced its intentions to launch the platform previously used by Lehman Brothers early this year in Europe, including the algorithmic engines, analytics and connectivity infrastructure. The company will face challenges in integrating this technology with its own, and officials say that this ensures that all regulatory and client requirements are met.

India In the Lead

While Nomura is getting headlines, many Indian companies have been gaining global market share for years. Using an outsourcing base to grow globally and move their products up the value chain, large companies such as Tata Consultancy, Infosys and Wipro already have a presence in the US and Europe.

"Most of the Indian systems integrators have been trying to penetrate US market for a few years now already, such as Infosys, i-Flex (now part of Oracle), Wipro, Tata, and so on," Lee says. "While they are typically offering their consulting services, most of these firms also have software applications they are marketing as well."

From their start providing simple technology maintenance services, these companies have made the move to back office systems and developed software specifically for exchanges and traders. "They obviously want to leverage their position in the model to go to the next level," says Sudin Apte, senior analyst and country head for India at Forrester Research, an independent technology and market research company.

As competition and costs have increased, however, the offshoring model that Indian companies pioneered has started to change. As brokerages go global, they are looking for technology services that can support offices around the world. "The model was very simple 10 years ago and now it is changing. The market is shifting to global delivery," Apte says. "Traders want their supplier to support not only US operations but their global operations."

As companies continue to globalize, however, India's technology vendors have some advantages. Costs are still low, and, "they have nothing to defend," Apte says. "Larger western companies have to continuously walk on a tightrope to determine what is the right mix of cost-saving and service."

Of course, India's companies are not untouched by the current crisis. Scandals in the finance world have hit India's vendors particularly hard, with the recent self-inflicted wounds of Satyam, one of the largest technology outsourcing firms in the country. The potential failure and sale of that company could sour some brokerages' taste for Indian exports.

Targeting New Markets

Not all of India's global companies are growing through outsourcing, however.  The country has one outstanding exception in the company Financial Technologies. 

Financial Technologies got its start helping build platforms for Indian brokerages and exchanges. The company focused on commodities and multi-asset markets and made its first move outside of India with the Dubai Gold and Commodities Exchange (DGCX). Financial Technologies has been slowly growing through alliances and joint ventures with exchanges in other developing countries. 

Dewang Neralla, co-founder and director of Financial Technologies, describes the company's most recent venture outside of India, a 60 percent stake in the Botswana-based Bourse Africa Limited, as "another milestone towards achieving our vision of creating one of the world's largest exchange networks connecting deep, vibrant and liquid financial markets in the fast-growing economies of Africa, Middle East, Central Asia, India, China and other Asian countries."

The Trouble with Satyam

HYDERABAD, INDIA-Indian technology companies may have to endure increasing scrutiny after scandal hit their shores and years of accounting fraud were uncovered at Satyam, one of India's largest IT outsourcing companies.  (For more on the Satyam scandal, please see the news section on page 6 and our online exclusive at watersonline.com.)

"The enthusiasm for offshoring may take a hit," says Sudin Apte, regional head for India at Forrester Research. "I think clients will start questioning Indian companies' governance."

The company allegedly falsified around $1 billion on its books to inflate Satyam's profit margins. Far from an India-only firm, Satyam is also established globally, with an office in Parsippany, New Jersey.

While some Indian companies will suffer from the scandal, and Satyam itself may not survive, a report released by Forrester on Jan. 8 predicted there would be opportunities in the fallout.

"The reality is that business going away from Satyam will likely go to another Indian company," Apte says. "There is no alternative location for technology outsourcing that can replace Indian companies in the short term."

The companies that will suffer, according to the report, will likely be family run operations, similar to Satyam. "We have already seen an increased focus on risk management over the past few months," says the report. "This event, coupled with the recession, will only increase firms' focus on this area."

Most of the companies that will suffer will be small, according to the report, with more clients moving to established vendors like Infosys.  

"Companies with better financial credentials will come forward out of this," says Apte, looking at India's vendors. "These times will help separate out bad companies and give good companies more opportunity."

Nomura's Rising Sun

TOKYO-Nomura has gained the most attention recently, expanding its boundaries as an investment bank. As the company picks up the pieces of Lehman Brothers in Europe and Asia, however, the bank is expanding its reach into IT services as well.

 In Europe, Nomura has announced that it will bring an electronic trading platform online in the early part of 2009. The platform was previously used by Lehman Brothers and will include the algorithmic suite, connectivity infrastructure and analytics previously used by the investment bank.

While the investment arm of Nomura has, in the past, expanded largely without the help of acquisitions, the IT arm of the company has relied greatly on this strategy. After the Lehman Brother's acquisition in Europe, the Japanese company moved to strengthen its IT capabilities by moving into India. 

 In November, Nomura bought up Lehman Brother's operations in Powai, a center the bank had opened in 2005 to provide operational and IT support to Lehman Brother's global network. The acquisition included a gain of more than 1,000 IT-focused employees for Nomura.

 "The acquisition of Lehman's operations in Powai is an important component of our global expansion strategy. It will allow us to significantly enhance our global service platform to support the business expansion that the combined talents of Nomura and Lehman will drive going forward," said Kenichi Watanabe, president and CEO of Nomura, in a press release.

 Similar to the acquisition of Instinet, Nomura plans to do its best to retain personnel, helping re-establish the electronic platform in Europe and the IT center in India. "By securing the support of all the staff who have agreed to join, we have generated significant momentum in our efforts to the businesses up and running under the Nomura name," said Sadeq Sayeed, chief executive of the acquired businesses in Europe and the Middle East, in a statement. -->