Infosys braces to match MNCs

Infosys Technologies is following several new initiatives to both drive growth and derisk its business as it becomes a billion dollar company and perforce has to think and act more and more like a global operation.

"A single global software services model is emerging, based on distributed development. While multinational companies (MNCs) are acquiring India development facilities, the leading India companies are acquiring consulting skills to match MNCs in providing business solutions and end-to-end services. Eventually there will be as set of global players among whom will be three to four Indian software leaders," says S Gopalakrishnan, chief operating officer of Infosys.

The leading India companies are ahead of their global counterparts in both volume growth and margins.

Their strategy to remain ahead encompasses both these. Margins will be protected by managing costs and that will be leveraged on increasing size and scale.

"For example, in the last five years, Infosys has cut SGA (selling, general & administrative) expenses from 19 to 15 per cent of turnover even as selling expenses have risen from 5.5 to 7.5 per cent," Gopalakrishnan added.

To drive growth in new areas, the company is seeking out new service lines like infrastructure management but in a carefully defined way - that part of it which can be remotely delivered like remote network and desktop management.

This leaves out things like onsite hardware management, which firms like IBM go in for and which requires vastly higher deployment of resources.

This business right now accounts for less than 1 per cent of revenue but represents a new area in which to grow. Another new thrust service area is testing and validation services.

In new technology services, Infosys is working on 3G for wireless services, wireless local area networking and identity management through the use of radio frequency identification (RFID).

The latter is changing the face of retailing and factory automation across the globe. These new technologies, for which there is a market and distributed development is taking place in India, will eventually result in new application management business for software services companies.

A strong challenge to margins is posed by the rising rupee against the US dollar. To combat this, Infosys is trying to do more billing in the euro, yen and other such hard currencies which have appreciated against the rupee.

Currently 70 per cent of business comes from North America but 85 per cent of billing takes place in US dollars.

Derisking the business also consists of seeking to spread out in newer geographies. Starting the China development centre at Shanghai is a key part of this strategy through which greater attention will be paid to markets like Greater China (including Hong Kong and Taiwan), Japan and Korea.

The aim is to build up a 300 member team there in two years. Since the Chinese are rapidly equipping themselves with English language skills, the Shanghai centre should be able to address English language markets in three to five years.