IBM’s growth in India is not just for the perceived cost advantage

IBM’s growth in India is not just for the perceived cost advantage
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First Published: Tue, Nov 25 2008. 01 00 AM IST

Decisive factors: Rajesh Nambiar says expertise, economics and environment decide what the IT company does and where it does. Hemant Mishra / Mint
Decisive factors: Rajesh Nambiar says expertise, economics and environment decide what the IT company does and where it does. Hemant Mishra / Mint
Updated: Tue, Nov 25 2008. 01 00 AM IST
Bangalore: From about 5,000 employees in 2002, the Indian arm of International Business Machines Corp. (IBM) will likely end this year with 85,000, which means that one in five workers at the Armonk-headquartered company will be based in India.
Since November 2006, Rajesh Nambiar, 41, has been steering Big Blue’s fortunes in services from India as vice-president and general manager of IBM Global Delivery, which serves its international customers.
IBM dominates the global services market, a space in which Indian IT companies such as Tata Consultancy Services Ltd (TCS), Infosys Technologies Ltd and Satyam Computer Services Ltd are increasingly making a mark. The services business accounted for around $55 billion of IBM’s $98.8 billion of revenue in 2007. A 17-year veteran of TCS before joining IBM, Nambiar reveals what sets IBM apart from the competition. Edited excerpts:
In 2000, the CEO of an Indian company presciently told me that one day IBM would emerge as the largest IT employer in India. Are you on course to do that?
IBM doesn’t look at India just from the number of people we have here. Yes, we have had significant (people) growth here. The way we look at it in the 172 countries we operate in, it is a combination of domestic market, innovation and global delivery. Though they sound distinct, they overlap to some degree and in a sense feed into each other. Our success in the domestic market has been possible because of some of the expertise we have brought from our international operations. Similarly, we have been able to take some of our learnings in the (Indian) telecom market, for instance, to our international clients.
Indian IT companies keep pointing out that while they need to keep growing the front-end (in terms of delivery centres and customers), IBM and other multinational players have had to build their delivery back-end in India which they feel would be more of a challenge...
Decisive factors: Rajesh Nambiar says expertise, economics and environment decide what the IT company does and where it does. Hemant Mishra / Mint
Every time there is a flex in the market, it tests the soundness of the strategy being followed. Post 9/11, when there was a flex in the marketplace, we looked at all options to serve our clients the best. India offered an attractive opportunity and thus (the growth here). Each time we have had flex, IBM has managed to emerge stronger.
If you are delivering a certain value at a certain price point, and that is no longer sustainable, we as a company have to react to that. To say IBM’s growth here is only as a reaction to (the perceived cost advantage) of Indian players is not true as we have been present in India since 1992.
Global strategy (which Indian players talk about) by itself is not enough. Global integrated delivery depends on right skills, right cost and right open environment. Expertise, economics and environment will decide where we do, what we do. For instance, in 2003, we moved our entire procurement base from Armonk to Shenzen in China. The chief procurement officer who used to procure from 300 different centres shrunk it to just three centres in China, India and Budapest (Hungary), packed his bags and moved to China. We were then (also) not reacting to somebody.
It is not about us having an India story, it is about IBM having a global story. India has the second largest headcount in IBM and appears in every (strategic) discussion we have, but it is in a global context. The Indian players play in one or two segments like services and BPO (business process outsourcing). They don’t have the software, the hardware. They don’t play in the infrastructure space, not in consulting. If you look at an end-to-end footprint, only IBM has that kind of a presence.
Even in the application development and maintenance segment where the Indian players (are present) in, IBM has core delivery centres from eight places: India, China, the Philippines, Vietnam, Egypt, Romania, Brazil and Argentina. I don’t think that any other player can match this kind of a reach or would have the ability to scale quickly.
Is IBM able to get the kind of cost efficiencies as Indian players do?
Let me address that in two ways. All of us agree that Indian market seeks value. Which (company) is the largest player in the domestic market in India? Have you wondered why it is IBM and not any of the Indian companies which have their headquarters and bases here? The reason is that in the Indian market there is no labour arbitrage. IBM does not play the arbitrage game.
Also See IBM India Headcount (Graphic)
Companies play on...one of these strengths: client partner skills, which means access to C-suites, solutions that one builds or an efficiency play. Indian players largely play the efficiency (cost) play, whereas IBM builds the best solutions. Of course, each of them will also have the other two, but primarily it has to revolve around one of the axes. The $6 billion we invest in R&D (research and development) and the 3,200 patents we file every year, must count for something. Right (laughs)?
Technology capability is taken for granted. A given. Domain capability is being acquired (by the Indian players). What sets us apart is our process domain expertise.
Specific to IBM’s India delivery centre, there is a perception that most of it is grunt work and that Indian players offer more challenging opportunities for employees...
We get 10 times the number of (lateral) entrants into IBM from these tier I Indian companies than we lose to them. That gives an indication of the kind of work we do.
We are a critical component in IBM’s Globally Integrated Delivery (GID) model, the India delivery centres leverages the presence of IBM’s key business and R&D units in India, including India Software Labs, India Research Labs, and Global Business Solutions Center. We have strong presence in several key sectors like communications, financial services, public sector, and general business... They serve industries like banking, insurance, financial markets, telecom, energy and utilities, media and entertainment, pharma and life sciences. The assets built in India are largely deployed for our international customers.
Graphics by Ahmed Raza Khan / Mint
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First Published: Tue, Nov 25 2008. 01 00 AM IST