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The View from the East

India's upstart IT-services firms face their own challenges from their giant rivals in the West.

Eleven floors above the heat and noise of Mumbai’s busy streets, Seturaman Mahalingam sits in the air-conditioned offices of Tata Consultancy Services (TCS) sipping tea. He looks relaxed, sanguine even, as he discusses his role as CFO of the biggest IT-services firm in India. Before long, he says, TCS will be among the biggest in the world.

Six hundred miles to the southeast, in an office campus outside Bangalore, Mohandas Pai, CFO of TCS’s rival Infosys, is equally confident. He talks excitedly of growth, profitability, and overseas expansion.

So does Suresh Senapaty, finance director of nearby Wipro, which wildly exceeded analyst expectations in April by announcing a 43 percent increase in fourth-quarter net profits, and a 23 percent increase for the full fiscal year.

Who can blame them for their optimism? The accomplishments of India’s rising IT stars are well known. “In 1994, we were a $10 million company. In 2004, we’ll have revenues of more than $1 billion,” says Pai. “We’ve grown 100 times larger in 10 years.”

The records of most of India’s other large IT-services firms, such as Satyam Computer Services and HCL Technologies, are equally impressive. Figures from India’s National Association of Software and Services Companies (NASSCOM) show that the country’s IT industry grew from $5 billion in 1997 to $16 billion in 2002.

That rosy picture plays nicely into Western fears of domination by India’s IT firms. But scratch the surface of the industry, and one finds these companies facing challenges familiar to their U.S. counterparts; among them, currency fluctuations, wage inflation, and public grumbling over jobs moving offshore.

The biggest threat to Indian IT firms, though, is the threat of competition from such long-established IT and outsourcing consultancies as Accenture, IBM Global Services, and EDS. During the past 18 months, these behemoths have grown acutely aware of the threat posed by their Indian competitors, and are squaring off for a showdown. But any effort to pick a winner in the coming fight quickly reveals that the IT-outsourcing industry is far more complex — and global — than often suggested by the current U.S. political debate.

India Shining

It wasn’t until 1991 — when India began to liberalize its protected economy — that the IT industry really started to gather steam. Foreign businesses saw the potential of India’s highly educated, English-speaking workforce and sent coding assignments there, where they could be handled for a fraction of their cost in the West.

At first, the work centered just on writing the proprietary software that companies used to automate internal processes. But as the Indian firms grew larger and honed their project-management skills, the assignments grew more complex.

Plummeting telecom costs during the 1990s made offshoring even cheaper, and soon Western businesses were relying on India not only for writing programs but also for installing such software packages as SAP, providing IT consulting, and even conducting research and development for new products.

Most recently, the Indian companies have added business process outsourcing (BPO) services to their menu of capabilities, and now handle all manner of back-office functions, from staffing customer call centers to analyzing tax returns. As Wipro’s Senapaty explains: “We want to capture as much of the budget of our clients as possible.”

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