NTT Data Corp, with its purchase of U.S. IT consulting and outsourcing firm Keane Inc., has begun a serious push to meet the needs of its increasingly globalized clients.
- NTT Data President Toru Yamashita discusses his firm's globalization strategy at a press conference on Tuesday.
NTT Data, a unit of Nippon Telegraph and Telephone Corp. bought Keane for 110 billion yen late last month. NTT Data expects Keane to give it a bigger presence in the world's largest IT services market.
At a press conference Tuesday announcing the company's earnings, NTT Data President Toru Yamashita promised more overseas acquisitions in the coming years. The firm's global expansion drive is being fueled by growing demand for international services among its customers, and a shift in its parent's strategic focus. "Unless we expand internationally, we will lose share in the Japanese market as well," Yamashita said.
Many of NTT Data's corporate clients, which include such household names as Panasonic Corp.(6752) and Honda Motor Co, are shifting more of their IT investments overseas. NTT Data fears losing important Japanese clients, which are racing to globalize their operations, if it remains focused on Japan.
NTT Data's overseas sales in the year through March 2010 amounted to some 70 billion yen, just 6% of its total revenue.
"We are considered incapable of dealing with overseas projects," said a senior executive at the firm. The trends bear these concerns out. NTT Data is losing more and more contracts to overseas rivals, creating a sense of crisis within the company. "If we keep losing here, we will eventually become irrelevant," Yamashita said.
Let's make a deal
NTT Data first approached Keane with a buyout offer in the summer of 2009, shortly after it announced an overseas sales target of 300 billion yen for the year ending March 2013. Keane and its major shareholders were cool to the idea at first, saying they had no intention to sell.
But NTT Data kept courting the U.S. company, and its efforts eventually paid off. Earlier this year, Keane's management and shareholders softened their resistance and told NTT Data that they would reconsider the offer.
Acquiring Keane is vital to NTT Data's globalization strategy. While its business in Europe has grown to annual sales of around 50 billion yen, thanks in part to its purchase of itelligence AG of Germany, NTT Data's operations in the U.S. have been stagnant for years, with annual sales languishing at around 15 billion yen.
Boston-based Keane racks up nearly 90% of its sales in the U.S. and boasts a broad and well-balanced customer base of government agencies, manufacturers, financial institutions, health care providers and others.
Like NTT Data, Keane's forte is development of information systems from the ground up. The U.S. company is ideally equipped to serve as the core of NTT Data's operations there.
Talks on the deal entered the last lap in early October, when the Citigroup Inc. unit that owned half of Keane proposed exclusive negotiations. A deal was struck in late October.
A move by the NTT group holding company also spurred NTT Data's efforts to scoop up Keane. In July, NTT announced an agreement to buy Dimension Data Holdings Plc, a South African information system services provider, for 2.1 billion pounds, or 286 billion yen.
NTT caused a stir at NTT Data by giving Dimension the same status within the group as NTT Data, which had been the group's key information system services unit. The move sent a message to NTT Data that it would not be given sole responsibility for globalizing the group's operations. Concerns about being sidelined prodded NTT Data to clinch the deal with Keane.
But the acquisition is just the start of NTT Data's globalization. The company is aiming for annual sales of 100 billion yen in each of the three key regions -- North America, Europe and Asia.
To achieve that goal, NTT Data needs to expand its business sharply in all these markets, especially in Asia, where it is grossing only about 5 billion yen annually.
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