Indian IT firms look at Strategy

Date: 30-01-2008
Source: Business Times, The

Stung by the appreciating rupee, rising salaries and average performance, Indian software companies are looking to diversify revenue sources, tapping new low cost locations and expanding client base.

According to global consulting firm PricewaterhouseCoopers, outsourcing has matured beyond just cost reduction to gaining access to the right talent and geographic expansion. Analysts say that the long-term solution for Indian firms is to climb the value chain, as the competition will only intensify while margins decline.

Thus, top software firms TCS, Infosys, Wipro, Satyam, Cognizant, HCL, Patni and MindTree have reported vigorous efforts to promote consulting efforts in travel, manufacturing, hospitality, financial services and retail.

High-end business consulting offers premium returns that can countervail lower margins on the pure software side. While consulting revenues have grown at a very high pace, the base is quite small.

TCS clocked a 60 per cent rise in revenues from consulting that contributed 3.4 per cent of the total revenues of US$137 million.

Most firms have chalked out plans to increase the contribution of consulting to at least 10 per cent of total revenues, given the high value.

Other strategies are being looked at with new international markets being one primary focus in order to build on other currency revenue streams, given the falling dollar.

Top Indian software firm TCS, with a strong presence in the US, has unveiled a new centre in Bangalore to focus on clients in the Asia-Pacific, Middle East and Africa. The new push is to garner work from banks and finance firms outside the US to reduce dependence on dollar billing.

Infosys has been looking to operate from new low cost locations. The firm is opening a facility in Mexico - its first in Latin America - in a bid to be as close to its maximum customer base in the US.

Infosys beat global software majors Capgemini and IBM to take over three captive outsourcing units in Thailand, India and Poland of the Netherlands-based consumer electronics major Royal Philips Electronics for US$28 million.

"The European market is very good because incrementally we are seeing more growth in Europe than in the US, including countries like Germany and France," Infosys said in a statement.

In an effort to work closely with the market, Wipro has made one of the largest overseas acquisitions in the technology space when it acquired US-based, Nasdaq-listed outsourcing firm Infocrossing for US$600 million.