Bangalore: Even as Indian information technology (IT) companies—hit hard by economic turmoil in their two key markets of the US and Europe from where they get nearly 90% of their revenues—scramble to sharpen focus on the domestic services market, Armonk-headquartered International Business Machines Corp. (IBM) has been quietly building up its presence here. A September report by research agency IDC India Ltd says IBM, with 9.6% market share, leads India’s domestic IT services market estimated at $5.1 billion (Rs24,327 crore).
Services contributes nearly half of IBM India’s estimated revenues of $1 billion and is spearheaded by 47-year-old Nipun Mehrotra, vice-president and general manager, global technology services. Mehrotra, an IBM veteran, has been with the company since it returned to India in 1992 after being expelled in 1977.
Business strategy: IBM’s Nipun Mehrotra says the company sees potential in the insurance, consumer goods, manufacturing, health care, real estate and retail sectors, but telecom remains the biggest segment. Hemant Mishra / Mint
IBM has successfully challenged Indian IT services firms in their backyard by signing up large IT outsourcing deals such as the landmark $1.2 billion project from Bharti Airtel Ltd. Since then, it has managed to sign on other telecom firms that include Vodafone Essar Ltd, Idea Cellular Ltd and Bharat Sanchar Nigam Ltd, besides bagging several services projects in banking, including the likes of Canara Bank and Union Bank of India.
Mehrotra outlined the new sectors where IBM is focusing on to fire the next stage of growth as well as about competition from Indian firms such as Wipro Ltd, Tata Consultancy Services Ltd, HCL Technologies Ltd and Infosys Technologies Ltd, and multinationals such as Hewlett-Packard Co. (HP) and Accenture Ltd. Edited excerpts:
How is the services business doing for IBM in India?
Internationally, we shifted from being a (hardware) player to services in the mid-1990s. Even globally, services contribute half of IBM’s revenues. In India, we made this shift in the last six-seven years and though we don’t break-up numbers (by country), we are big. We have come from almost nothing to now being a large part of IBM (India’s revenues) and we made this transition in a smaller time than IBM globally. But more than the size, it is the kind of work which we are doing here...which is important.
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What other sectors than telecom and banking are you looking at ?
We signed up for instance in insurance Max New York Life, which is $450 million, 10-year business transformation deal for end-to-end technology and process backbone. Insurance, FMCG (fast moving consumer goods), manufacturing, health care, real estate, retail—there are several sectors where we see lots of potential. The reality is that some of the orders we pick up might be just Rs5-10 lakh. It is not every day that we can have (deals of the size of) Airtel, Vodafone or Idea. Telecom, after all, is the biggest segment.
Given that Indian market demands a bigger bang for the buck, have you been able to get margins?
Yes. That is because unlike some of our Indian friends who are dependent on a people-oriented model, we have perfected the art of asset-based delivery model. We are able to get better margins than the Indian players. They are fierce competitors no doubt, but the difference is IBM does not sell customized services like it used to do even a few years back. We have moved that to a product-oriented service, which ensures that we used standardized modules, deliver higher quality, quicker turnaround and better margins. Only the bells and whistles will be customized. This is exactly the path traversed by the software industry and that is why I am so confident about our model.
Is there a slowdown in the domestic service market?
No, not that I (get a feel of). Most of our contracts are anyway long-term. At the moment, we aren’t seeing any slowdown. (In) future it may change. That is also because the value we provide changes with market conditions. Earlier, customers were asking us if we could help them grow, innovate, etc. Now they want to use IT services to save costs. For instance, by helping a telco customer consolidate servers, data centres, we were able to save millions of dollars in just energy savings. In general, I am satisfied with the growth we have been having.
With HP’s buy of EDS (Electronic Data Systems Corp.) which had a large presence in India, do you see more competition from them?
Not much. HP is big from the hardware point of view—they leverage that strength in services. We actually see a number of Indian players such as Wipro, TCS and others. We see a lot of Wipro and Suresh (Vaswani, co-chief executive of Wipro) is a good friend (laughs). TCS is good at government contracts. Accenture in some consulting (areas). The reality is market is big (and) in excess of $5 billion, and there is room for everybody.
What about the SMB (small and medium business) segment?
Last year we grew that by around (client number-wise) 100% and today it contributes...maybe...30% of the overall services revenues. We are clearly focused on the SMB segment.
Graphics by Sandeep Bhatnagar / Mint
Ajay Sukumaran contributed to this interview.