Courtesy: http://www.bloomberg.com/
International Business Machines Corp. 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. and Infosys Technologies Ltd. have won over US companies with cheaper labor 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.’s 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 more than 70,000 employees in India, taking advantage of the “hyper-growth” there by helping domestic companies develop infrastructure, said Sandip Patel, managing partner for services in the country. IBM also may attract new customers from India’s Satyam Computer Services Ltd., embroiled in the nation’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 percent in the year starting April 1, the International Monetary Fund said in March. The US economy will shrink 2.6 percent this year, IMF projects. IBM’s sales from India increased more than from any other country in the past three years.
Building Infrastructure
IBM snapped up contracts from Bharti, India’s largest mobile-phone operator, and Kotak Mahindra Bank Ltd., the former partner of Goldman Sachs Groups Inc. in India. IBM is helping emerging markets develop, as opposed to just focusing on cost cuts, said Edward Jones & 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 more than 13 percent of the Indian market, which includes technology and business consulting services, according to Gartner. Tata Consultancy, the biggest India-based computer- services company, has 9.7 percent and Wipro Ltd. has 4.5 percent. Infosys, the No. 2 Indian services company globally, has 0.2 percent 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 unfavorable, Patel said. IBM started focusing on the market again about a decade ago, opening a local research lab in 1998.
New Landscape
“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 Officer Sam Palmisano held an analyst meeting in Bangalore in 2006, the first such IBM event in India. In 2008, the company opened a center 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.
Largest Market
IBM’s sales in India jumped 26 percent last year, compared with 15 percent in China and 18 percent in Brazil. The company 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 percent.
Indian outsourcers such as Tata Consultancy 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.
Tata Consultancy gets 8.9 percent of its revenue from its home country. Infosys gets 1.3 percent of sales from India. They are slowly shifting away from just providing software services aimed at cutting costs, toward longer-term outsourcing deals in India, Young said.
All may benefit from customer defections at scandal- embroiled Satyam, particularly foreign companies such as IBM and Accenture Ltd., Miedler said. Satyam founder Ramalinga Raju admitted to inflating $1 billion of the company’s assets, and faces charges including criminal conspiracy and falsification of accounts.
More Competition
Tata Consultancy 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 March 13 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 in an interview.
IBM rose 64 cents to $101.83 at 9:54 a.m. in New York Stock Exchange composite trading. It had risen 20 percent this year before today.
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 center 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 said in an interview in New York on March 23.
“The more the merrier,” Nilekani said.
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