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8/14/2007
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Indian Outsourcers Likely To Acquire More U.S. Firms, Analyst Suggests

Among the drivers for these deals is the United States' cap on H-1B visas, which isn't likely to be raised from the current ceiling of 65,000 anytime soon.

Following on the heels of Wipro's plan to buy U.S.-based IT services firm Infocrossing for $600 million, don't be too surprised to see other Indian outsourcers making megadeals for American companies in the near future. This is according to an official at Nasscom, an organization representing the Indian IT and software industry.

"Indian companies are sitting on a lot of cash, $500 million to $1 billion," said Ameet Nivsarkar, VP of research at Nasscom in an interview. Plus, "the valuation of Indian IT companies is high" compared with U.S. companies right now. "This is the right time" to do these large deals," he said.

While big, the Wipro-Infocrossing deal isn't even the largest cross-border outsourcing acquisition this year. In June, Caritor -- an application developer based in California, but whose 3,900 employees are predominately in India and whose founder is Indian -- acquired U.S. IT services provider Keane in an $854 million deal backed by Citigroup Venture Capital.

"It's definitely possible" that there will be more of these bigger deals, Nivsarkar said.

Among the drivers for these deals is the United States' cap on H-1B visas, which isn't likely to be raised from the current ceiling of 65,000 anytime soon. (An additional 20,000 visas are exempt from that cap for foreign students who receive advanced degrees from U.S. schools.)

Indian outsourcers are among the biggest recipients of the H-1B program, using the visas to bring foreign-born employees temporarily into the United States to work with American clients.

"Without a doubt, the H-1B cap is artificially freezing the transfer of knowledge and people between companies in different countries," said Nivsarkar.

"It's definitely affecting Indian companies; they are not able to fulfill orders as much as they would like," he said. Indian companies have no problem getting American business, but the cap is "hampering the ability to deliver business," he said.

"Business is strong; it's the supply [of people who can come to the United States] that's a problem."

Still, while other Indian IT outsourcers could follow Wipro's recent example by acquiring American IT services firms in coming months or years, that strategy for U.S. expansion isn't as easy as it might seem, Nivsarkar said.

"Acquisitions in the IT services sector [between companies in India and the United States] tend to be more difficult than acquisitions in other industries, like manufacturing, because of the cultural differences," he said.

So Nivsarkar predicts that most Indian companies eyeing acquisitions in the United States are probably more likely to tip-toe into this type of strategy.

"They're likely to go slow," he said.

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