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IT firms step out of sandbox

IT firms step out of sandbox
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First Published: Wed, Jul 30 2008. 11 06 PM IST

Illustration: Jayachandran / Mint
Illustration: Jayachandran / Mint
Updated: Wed, Jul 30 2008. 11 06 PM IST
Infosys Technologies CEO Kris Gopalakrishnan has told Mint that the firm would shift its strategic focus from maintaining high profit margins to chasing more growth. Infosys is seen as a weathervane for the Indian IT industry. So, its peers will hopefully pick up the signal and take a hard look at their own strategic choices.
Illustration: Jayachandran / Mint
All this talk about focussing on growth may seem odd at first glance. The Indian IT services industry is doing well. It has grown many times faster than the overall economy for more than a decade. Even now, amidst talk of a slowdown in its key markets, revenue from software and services exports is expected to grow 22-24% this year, to touch $50 billion.
But there is an undercurrent of angst in the industry, as leading players realize that while they are doing well, they can do significantly better. The success of the Indian IT industry in software services masks the fact that the global market share of its top six companies is just 2.4% of the $748 billion industry. This share has been growing, but not fast enough.
That is because Indian IT companies are obsessed with margins. They have to now make a play for growth.
Acquisitions will play a big role. When EDS, an outsourcing pioneer, was up for grabs, no Indian IT company gave it a serious thought, because EDS had low margins and its workforce was in high-cost locations. An Indian company with EDS in the bag would have gained scale, expertise, as well as access to critical “C-Suite” relationships.
Yes, the move could have been risky and markets appreciate and reward predictable growth. Indian IT companies have, however, become prisoners of their own margin-obsessed sandbox. They need to realize they cannot offshore everything without inviting some backlash. The response to that is likely to be more nearshoring, or offering services from the same country as the customer.
That would mean managing workforces across cultures and being able to attract and retain multinational talent. Today no major Indian IT company has even 10% of its workforce coming from a non-PIO (people of Indian origin) background. Management, too, needs to get the hues of a cultural rainbow. It will also test whether Indian IT companies have scalable business models and can work across the globe. Infosys is taking the lead as usual. It will be interesting to watch how the industry evolves and adapts.
Should Indian IT companies prefer growth to margins? Write to us at views@livemint.com
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First Published: Wed, Jul 30 2008. 11 06 PM IST