Go, scale up exponentially in India. That’s the mantra global software biggies have been chanting for some time now.
MUMBAI: Go, scale up exponentially in India. That’s the mantra global software biggies have been chanting for some time now.
On Friday, when Accenture, the world’s second biggest technology consulting firm, declared its third-quarter results and raised its earnings forecast, it did so with the comfort of having 35,000 employees in India, its largest foreign base.
A year back, it had under 20,000. Five years ago, 400. It has 158,000 employees globally.
“It’s important to establish a dominant market position in India, not only to leverage supply there, but to serve local companies and the India branches of our global clients,’’ chief executive officer William Green was quoted as saying in Bloomberg.
This may also be the very reason why home-grown software majors such as Infosys want to achieve scale abroad, and may be hunting for bigger quarry such as Capgemini SA of France, which has three times Infy’s sales but only half its profit.
“The ideal middle ground would be the offshore capabilities of Infosys and the consulting practice of McKinsey & Co. I don’t think Indian companies can continue to add 30-40,000 people annually for long. They have to move up the value chain and perhaps vacate the lower-margin work,” said an analyst.
This is a far change from the days when the global giants considered India a hub fit for only low-cost work such as ADM (application development and maintenance).
Till as early as 2002-03, the big 3 (IBM, Accenture, and EDS) were dismissive of the India story, labelling it as low-cost, low-quality centre.
“Around that time, they found, much to their chagrin that Indian companies such as Infosys were offering the same quality of work at half the price and yet enjoying three times their operating margins. Then the race to scale-up began,” said an analyst with a foreign brokerage.
IBM India has 53,000 employees on its rolls. EDS, a late starter, hopes to have 20,000 employees on its India rolls this year. Capgemini, with its acquisition of Kanbay International last year, ramped up its India headcount to 12,000.
"There is considerable pressure from the investor community back home to improve margins. And the only way the companies such as IBM, Accenture, and EDS can do it is by increasing the level of offshoring, while maintaining their consulting face. So it is crucial to build up scale in low-cost destinations like India," said another analyst. The importance of India in their overall game plan was further strengthened with IBM, in a departure from tradition, hosted its annual analysts meet in Bangalore in 2006.
By 2010, the world's largest software company expects its revenues to be around $120 billion, of which nearly $86 billion (68%) would come from IBM Global Services alone, with an estimate of about 200,000 employees. IBM would account for nearly half of these employees. Look at it another way, divide revenue per employee, and a whopping $35 billion would be from India by 2010.
Similarly networking giant Cisco came to India in 1995 and today employs over 2,000 people in research and development. According to TCS chairman Ratan Tata, the domestic IT market (including hardware) is $15.9 billion, up 20% from last year. Software export, however, is much larger at $31.9 billion. For the quarter, revenue growth for Accenture from Europe, the Middle East and Africa climbed 19% to $2.47 billion, while Asian sales climbed 44% to $457 million.
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