|
In
tough times, India's top software firms are assuming multiple
roles: code-cruncher, systems integrator, call centre. They're
growing rapidly by taking on more business--and larger competitors
LAST
MONTH, two information-technology firms on opposite sides of the
world announced quarterly results. For Texas-based
computer-services giant Electronic Data Systems (EDS), the news
was bad: sales down by 3% compared to the same quarter last year,
new business down by more than 50%, and job cuts for 5,000
employees. But for Indian software firm Infosys Technologies, the
opposite was true: revenues were up 35%, profits increased 12%,
and new hires hit nearly 2,000.
It's a telling comparison. As global IT giants struggle, India's
top software firms are finding new ways to grow at a rapid pace,
sometimes at the expense of companies many times their size. By
going after larger jobs and expanding the kind of services they
offer, they're notching revenue growth of 20%-30% over last year
even as technology budgets get squeezed.
Their pitch--high-quality services at highly competitive
prices--is music to the ears of cost-conscious executives in the
United States and Europe who don't see a worldwide economic
recovery any time soon.
The story goes like this: India's top- tier software
firms--Infosys, Wipro, Tata Consultancy Services, Satyam Computer
Services and HCL Technologies, with more than $2.5 billion in
combined sales--are emerging from their cocoon of custom software
development, on which they built their businesses. They're still
the world's major code-crunchers, but now they're including
systems integration and call centres among their services. They'll
even run part of your IT department for you, taking over staff or
moving them to India. And they're devising detailed contingency
plans to reassure customers that their work is safe, even when the
Subcontinent isn't.
Those tactics also mean that increasingly they're going head to
head with the big boys like EDS, Accenture and IBM in a bid to win
customers and spur growth in lean times. "Indian IT companies
are in the process of transforming themselves into very serious
competitors," says C. Srinivasan, managing director in India
of A.T. Kearney, the consulting arm of EDS. "They're
beginning to tell a good story to clients and clients are
beginning to respond."
The attempt to become a one-stop shop for cost-conscious
multinationals is part of a major reorientation by the top Indian
firms after a bruising two years that have slowed growth and
shrunk profit margins. Before then, everyone was "feeding at
the trough," laughs Nandan Nilekani, Infosys' CEO. Since the
Internet bubble burst in 2000, however, "the trend among
large corporations to rein in IT spending has never been
stronger," he says.
That means pressure on profits will continue, though top firms say
it's abating somewhat. While many of India's small and
medium-sized tech firms are in trouble, the biggest players are
poised to take advantage of the cost-cutting drives sweeping
through boardrooms in the West.
This time, however, the deals aren't about sending hordes of
bright young software engineers to developed countries on
short-term contracts.Instead, for cost reasons, companies are more
and more interested in "offshoring"--doing work in India
itself. Sales from such work jumped 64% in the 12 months to March,
according to the National Association of Software and Service
Companies, or NASSCOM.
Multinationals are also eager to consolidate their IT work with a
few firms rather than dealing with a dozen. "Clients are
saying, 'Can you take total responsibility, and where you do it is
your problem'," says S. Ramadorai, CEO of Tata Consultancy
Services, India's largest software firm.
TCS, as it's known, is a good example of the trend. In the past
year, it has agreed with Japanese hardware giant NEC to
collaborate in Asia and beyond. It also acquired an Indian firm
with expertise in integrating software and hardware. "The
intent clearly is to bid for the big deals," says Kiran
Karnik, president of NASSCOM in New Delhi.
Overall, says TCS' Ramadorai, big Indian firms are looking at
larger, longer-term and more complex projects than in the past. In
one such example, TCS recently announced a deal worth $80
million-100 million over the next four to five years with GE
Medical Systems that will involve implementing technology in
several continents.
Vivek Paul, CEO of Wipro Technologies, says that companies no
longer want to start with a small pilot project and ramp up, but
would rather go the whole hog from the start. Paul says his firm
is now working on several deals worth $20 million or more per
year, far higher than the industry's norm.
All that adds up to a problem for U.S.-based IT giants like EDS
and Accenture. "Clearly, competition has increased in the
last few months as they get further traction in the market, thanks
to their references and credentials," says Sanjay Jain,
managing director of Accenture in India.
The Indian companies make no secret of the fact that they're
eyeing the business model of the American IT giants, where
services run the gamut from consulting to software code-crunching
to the installation of hardware. Of course, they're nowhere near
that size and scope. And when it comes to truly large IT deals
that run into billions of dollars, Indian companies still would
only qualify as subcontractors.
Nevertheless, such IT giants "are definitely taking note [of
the Indian firms] and they are already losing some smallish
deals" to Indian competitors, says Rita Terdiman,
vice-president at technology research firm Gartner. As a result,
they're paying Indian firms the ultimate compliment: replicating
their operations. EDS, Accenture, IBM and CSC have set up
outsourcing centres in India to find ways to offer the same cost
advantages Indian firms do.
These two sets of competitors view each other with a healthy
respect but also a dose of scepticism. IT majors don't believe
Indian firms can match their global reach or breadth of expertise
any time soon. In turn, Indian firms don't believe IT majors can
duplicate their cost efficiencies.
Right now, it's Indian companies that are benefiting from the
cost-cutting environment. Software industry executives say
investment firm Lehman Brothers is negotiating a large IT
outsourcing deal in India, a first for the company, as is PepsiCo.
The two companies did not respond to requests for comment. They
belong to a group of firms who are either looking at India for the
first time or greatly expanding the scope of the technology work
they do here. Typically, customers have been concentrated in
businesses like banking and telecommunications, but today, say
executives, there's also interest from the automotive, energy and
pharmaceutical industries.
Indian firms aren't simply seen as a cheap alternative. For
example, they continue to monopolize the most prestigious measure
of software-code writing ability--SEI CMM Level 5, developed by
Carnegie Mellon University.
While average CEOs might not appreciate that kind of geeky honour,
they can relate to something like Six Sigma productivity
techniques which aim to identify and eliminate errors in a
company's internal processes. Firms like Wipro have embraced Six
Sigma with a vengeance.
In the meantime, Indian firms are tackling another challenge: the
lingering impression that India is an unsafe place in which to
base critical work. Ever since the war scare on the Subcontinent
in May and June, the software firms have doubled their attention
to contingency plans in case of disaster.
Whereas customers previously only wanted back-up within the same
city, they now want a plan to shift work elsewhere in India, and,
if necessary, elsewhere in the world. Infosys announced earlier
this month that it would set up a centre on the island of
Mauritius in the Indian Ocean for just that purpose. Preparing for
the worst has shifted from being a secondary concern to a prime
obsession. Privately, some software executives gripe that those
worries have become a growth industry for consultants, who will
verify for clients that such plans are in place.
The top Indian companies are also pushing ahead with what they see
as an important source of growth: providing back-office services
for multinationals, whether answering customer calls and e-mails
or processing a company's invoices and payroll. Such services grew
70% last year. In recent months, Wipro and Infosys have acquired
or created businesses to address this need, and if possible,
cross-sell them with their other services. Infosy s, for example,
is providing back-office services to GreenPoint Mortgage, a U.S.
home lender, along with its more traditional IT work.
It's all part of leaving their narrower focus on software behind
and growing into something much larger. Says NASSCOM's Karnik:
"We're beginning to see visions at least of taking on the big
boys."
|
