Capgemini Widens the Moat

[Tom Spencer]

 

Capgemini, the management consulting and technology firm, is increasing its capacity to deliver business out of India. On Wednesday, it expanded its facility in Talwade (near Pune) bringing its total investment in the facility up to around Rs 3 billion. Over the last 5 years, Capgemini has increased staff numbers in India by over 40,000.

 

There are a two implications of Capgemini's move. 

 

Firstly, the firm has said it plans to target growth in the Asia-Pacific and Latin America. Since the expansion of man-power is in India, it will be interesting to see what share of the value will be provided in the local markets and how much can be provided in India. It is common practice for firms like McKinsey, BCG and Bain to outsource the production of powerpoint slides to India, while sending well dressed and well spoken management consultants to meet with clients on the ground in local markets.

 

With the recent rise of websites like Expert 360, and with the increasing quality and capabilities of Indian workers, it is an open question whether well dressed (and expensive) consultants will continue to be needed in coming years. 

 

Secondly, the large investment in capacity helps Capgemini build a barrier to entry in the market for management and IT services. It will presumably give Capgemini a cost advantage and so the ability to undercut new entrants on price. It also raises the amount of capital required by new entrants to compete in this space.

 

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