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IBM beating outsourcing rivals from India at their own game

IBM beating outsourcing rivals from India at their own game
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First Published: Thu, Apr 09 2009. 10 39 PM IST
Updated: Thu, Apr 09 2009. 10 39 PM IST
New York: International Business Machines Corp. (IBM) is expanding in India and grabbing enough customers to take the top spot in the country’s domestic information technology market from local rivals.
While Tata Consultancy Services Ltd (TCS) and Infosys Technologies Ltd have won over US companies with cheaper labour and low capital costs, IBM snapped up contracts with some of India’s largest companies, such as wireless carrier Bharti Airtel Ltd. The strategy will yield dividends for IBM over time as India’s economy thrives, Kaufman Bros.’ Karl Keirstead said.
“They’ve beaten their competition relatively handily,” said the New York-based analyst, who pointed to IBM’s brand name and experience as draws for potential clients. “There’s a cachet in using IBM.”
IBM has hired at least 70,000 in India, taking advantage of the country’s “hyper-growth” by helping domestic firms develop infrastructure, said Sandip Patel, managing partner for services in India. IBM also may attract new customers from Satyam Computer Services Ltd, embroiled in India’s largest accounting scandal.
India is slowly transforming from a back office—a place where companies send work to cut costs—to a coveted domestic market with fast growing companies, Patel said. The services market is worth almost $5 billion, according to research firm Gartner Inc.
India’s economy will grow 5.3% in the year started 1 April, the International Monetary Fund (IMF) said in March. The US economy will shrink 2.6% this year, IMF projects. IBM’s sales from India increased more than from any other country in the past three years.
IBM snapped up contracts from Bharti, India’s largest mobile phone operator, and Kotak Mahindra Bank Ltd. IBM is helping emerging markets develop, as opposed to just focusing on cost cuts, said Edward Jones and Co. analyst Andy Miedler.
“They’re focusing on how they can help emerging governments become the big governments of tomorrow,” he said. “One of the key ways you can do that is build the computing infrastructure.”
IBM, the world’s biggest computer services provider, has at least 13% of the Indian market, which includes technology and business consulting services, according to Gartner. TCS, the biggest India-based computer services company, has 9.7% and Wipro Ltd has 4.5%. Infosys, the No. 2 Indian services firm globally, has 0.2% of its domestic market.
IBM started manufacturing hardware in India in the 1950s, then had to abandon the efforts when the region’s political situation was unfavourable, Patel said. IBM started focusing on the market again about a decade ago, opening a local research lab in 1998.
“We looked at the changing landscape in India. We had seen there was a growing educated workforce,” said Patel. “We brought in our expertise and our investment at the right time.”
Since then, IBM boosted its headcount in India to 73,000 at the end of 2007, the last time it provided employee numbers for the country. Chief executive Sam Palmisano held an analyst meeting in Bangalore in 2006, the first such IBM event in India. In 2008, the company opened a centre for so-called cloud-computing services in the same city.
Meanwhile the company is reducing jobs elsewhere. Last month, IBM cut 5,000 business-services jobs, mainly in the US, according to a person familiar with the matter. The cuts added to at least 4,000 in other units since January.
IBM’s sales in India jumped 26% last year, compared with 15% in China and 18% in Brazil. The firm doesn’t break out the dollar value of revenue from those countries. Sales growth in the US, Armonk, New York-based IBM’s largest market, amounted to 2.9%.
Indian outsourcers such as TCS and Infosys didn’t initially invest the capital necessary to land large domestic jobs, which are mostly about developing infrastructure, said Allie Young, an analyst at Gartner.
TCS gets 8.9% of its revenue from its home country. Infosys gets 1.3% of sales from India. They are slowly shifting away from just providing software services aimed at cutting costs, towards longer-term outsourcing deals in India, Young said.
All may benefit from customer defections at Satyam, particularly foreign firms such as IBM and Accenture Ltd, Miedler said. Satyam founder B. Ramalinga Raju admitted to inflating $1 billion of the firm’s assets, and faces charges including criminal conspiracy and falsification of accounts.
TCS spokesman Mike McCabe didn’t respond to requests for comment. Infosys is set to receive several long- term contracts, Amitabh Chaudhry, head of the company’s services unit, said in a 13 March interview.
Wipro, India’s third largest provider of software services, is starting to win larger deals in India, K.R. Lakshminarayana, the company’s chief strategy officer, said.
US rival Accenture has made inroads in the country, announcing plans last year to boost its workforce there. Still, that company also focuses more on software-based services instead of infrastructure, rendering it more vulnerable to Indian competition, Young said. An Accenture spokesman declined to comment.
“There are companies that are in dire need of just a physical infrastructure—a data centre or a network system around India,” Young said. “That’s where IBM has the advantage.”
Competition from IBM and other multinationals is welcome, Infosys co-chairman Nandan Nilekani had said in an interview in New York on 23 March.
“The more the merrier,” Nilekani said.
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First Published: Thu, Apr 09 2009. 10 39 PM IST
More Topics: IBM | TCS | Infosys | Bharti Airtel | Satyam |