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IT Leadership // IT Strategy
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2/3/2006
01:55 PM
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Growth Plans

Aging infrastructure, low-cost competitors, and worker shortages could clip India's IT boom. Here's how the country's tech leaders are coping. Second of three parts in the Inside India series.

At the World Economic Forum in Davos, Switzerland, two weeks ago, India was indeed everywhere. From an "India Everywhere" marketing campaign that blanketed the snow-covered town to a packed cocktail party celebrating India's Jan. 26 Republic Day to tireless glad-handing by Infosys Technologies CEO Nandan Nilekani and other subcontinent big shots, the emergence of India and China was topic A at the annual gathering of influentials. To some, the party is just getting started.


When it comes to talent, IBM India's Thukral believes no one country will make or break you. -- Photo by Mahesh Bhat/Getty Images

When it comes to talent, IBM India's Thukral believes no one country will make or break you.

Photo by Mahesh Bhat/Getty Images
"What's driving this whole thing is that companies have found a superefficient way to create a back office, and sometimes a front office," says Steve Pratt, CEO of Infosys Consulting, a subsidiary of Infosys Technologies, unwinding in his hotel room after a night that included dancing with tennis star Monica Seles. "That wave is not nearly played out yet."

But as our firsthand report in part one of the Inside India series indicated, a potential shortage of qualified tech workers; rising wages; battered roads, airports, and power grids that aren't keeping up with increased use; and competition from low-cost markets in Asia, Africa, and Europe threaten to hold back expansion (see "Inside India," Jan. 16, p. 38). In response, India's tech leaders are looking overseas for new talent, getting more involved in improving the country's infrastructure, cultivating expertise in emerging technologies to snare new outsourcing work, and using mergers and acquisitions to supplement organic growth.

To wit: India's technology and business-process outsourcing industry is forecast to grow from $22 billion for the fiscal year ending in March, to $60 billion by 2010, according to a report issued last month by Indian IT trade group the National Association of Software and Service Companies and consulting firm McKinsey. To fuel that 30%-plus annual growth, Nasscom-McKinsey predicts that the Indian cities of Bangalore, New Delhi, Hyderabad, Chennai, and Mumbai will employ a million more tech workers within five years. Other Indian towns will add 600,000 IT jobs. Those workers could take 1 million international flights in 2010, accounting for a fifth of Indians' international air travel, Nasscom-McKinsey says. But fly into Bangalore's misnamed international airport--a rundown concrete blockhouse with a few worn-out baggage belts and metal folding chairs in the lobby--and you get an idea of what those travelers will be up against.

On A Roll
Offshore outsourcing is by no means tapped out in India. Infosys, which is India's No. 2 outsourcer based on the most recent fiscal year, last month reported a 32% increase in revenue for its third quarter ended Dec. 31, to $559 million, putting it on track for more than $2 billion in sales for the year. Profits rose 28%, and the company added more than 3,200 employees and 36 clients, as it expanded into new sectors, including oil and gas, insurance, and pharmaceuticals.

Wipro, the No. 3 Indian outsourcing company, last month reported a 33% increase in revenue, to $617 million for the Dec. 31 quarter; net income rose 25% to $118 million. And No. 1 outsourcer Tata Consultancy Services saw profits in its December quarter rise by nearly 9% and revenue increase 10.6%, to $725 million.

Whether India's tech pacesetters can match investors' goals in the quarters ahead will depend on their ability to help address national problems. It also hinges on how they execute their growth strategies. Branching into new areas could be especially important as companies looking to outsource IT work split up large deals among several service providers. In order to keep growing, Infosys, TCS, and Wipro are beefing up their consulting practices, adding skills in new tech domains, branching into non-IT product design, and expanding internationally.

Gopalakrishnan will push Infosys beyond IT. -- Photo by Mahesh Bhat/Getty Images

Gopalakrishnan will push Infosys beyond IT.

Photo by Mahesh Bhat/Getty Images
One new emphasis is installation of Oracle and SAP business applications. Packaged software, network and infrastructure management, radio-frequency identification, and mobile computing are other areas in which Infosys is investing, says chief operating officer S. Gopalakrishnan. The company, which is rapidly adding consultants, got about 35% of its revenue from computer systems maintenance, 30% from application development, and the remainder from testing, business-process work, and consulting. One recent deal: A contract with Institutional Shareholder Services has Infosys advising on IT buying and design of next-generation systems. But Infosys' consulting revenue is still "miniscule" compared with its app development and maintenance work, says Forrester Research analyst Stephanie Moore.

About 4% of Infosys' revenue comes from non-IT product design in the aerospace and automotive industries--for example, a deal with Airbus Industrie to design part of the wing for Airbus' new A380 superjumbo jet. Wipro also has a piece of that contract.

Wipro also has a deal with General Motors for $300 million of work over five years, a portion of which was awarded last week as part of the $7.5 billion in IT contracts GM handed out. One place Wipro is looking to for growth is in its ability to capture slices of research and development spending that multinationals today do in-house, either in their home countries or at their own operations in India. "Any fundamental R&D, they don't want to outsource," says Divakaran Mangalath, Wipro's CTO. Intel, for instance, will outsource development of new versions of existing products, such as engineering for its dual-core chips. But key to capturing R&D for next-generation products, work that Intel currently keeps in-house, will be building expertise in areas such as wireless technologies and communications chips.

TCS is seeing its share of growth, too. It signed 12 new customers in its industrial engineering unit, increased head count to 3,400 consultants, and expanded into areas such as plant management and integrating factory-floor software with business apps, according to the company's quarterly report. TCS also signed big IT deals with banks in India, China, and Russia during the quarter.

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