Oracle flexes its muscles

Updated: Aug 4 2005, 05:30am hrs
The Oracle-i-flex deal marks a paradigm shift in the way foreign firms see Indian IT companies. Though foreign firms have acquired prominent Indian BPOs like Daksh in the past, their interest in Indian IT companies has remained limited for two reasons: one, they consider domestic firms overvalued and, two, Indian companies are seen as nothing more than factories of labour arbitrage.

This deal, which will nudge Indias biggest M&A, the $1-billion deal for BPL Communications by Essar, changes all that. The acquisition of Indias largest software products company for $909 million (including the $316 million open offer) shows Indian software companies in a different light altogether. It puts the perception of domestic Tier-I firms in a different league. By the time Oracle completes the deal towards the end of 2005, i-flex could see a huge upside in its business. i-flex gets ready access to Oracles global customer base of 8,500 banks which includes 95% of the worlds top-tier banks. Oracles predominance in North America is the biggest advantage for i-flex, as the company has not been as successful in North America as in Africa, Europe and Japan. There are obvious synergies too. At least 90% of i-flexs customers of Flexcube are already on the Oracle platform.

For all the advantages of the deal, there is a flipside as well. The flagbearer of Indias miniscule number of software products companies has changed hands from its original promoter, Citigroup, to the worlds second largest software firm Oracle. Technically, its a mere change of ownership. Neither the management nor the brand and company name are being changed right now.

But for the i-flex management led by Rajesh Hukku, things will never be the same again. The i-flex top management, which has worked like entrepreneurs since the company was started, loses its independence in the bargain. This is because unlike Citigroup, which saw itself as a mere investor in the company, Oracle is not going to be a hands-off investor. The buyout gives Oracle a significant headstart in a domain where it was absent. Hence, i-flex will be an integral part of its business strategy. Though Oracle insists that it would encourage Flexcube development on competitors platforms, one of the first few casualties could be the division that was working on reducing i-flexs dependence on the Oracle platform. Its quite possible that over time, i-flex may lose its identity. But the companys shareholders are unlikely to complain, as they are, most certainly, bound to gain.