Infosys falls in line

One of the longest waits in Indian corporate life is over. Infosys Technologies has announced a sizeable acquisition "" an Australian company for $ 23 million.

Acquisitions had become an issue for Infosys ever since it listed in the US in 1999 and grew as a question as its cash pile grew with every passing year.

The question of what the cash pile was doing for shareholders has remained, although investors in Infosys have been more than happy. Acquisitions have, in fact, become a prominent issue for the entire software industry in recent years.

Indian software companies' lack of consulting skills has become noticeable as they have sought to move up the value chain. This has pointed to the fact that the gap can be filled through acquisition.

Infosys' reluctance to make such acquisitions has stood out in contrast to Wipro's practice of going ahead with several of them. So the acquisition just announced has, in a way, been long over due.

There are obvious reasons why Infosys was reluctant to make an acquisition. It is in the services business where people matter the most and the company has a distinctive internal culture. The company could hardly want to see this culture diluted or be made into an issue through an acquisition running into trouble.

Lastly, there is no point in acquiring a services business and then seeing the most valuable assets, its people, walk away. So there is every reason for the company to have been cautious in the matter.

But taking too long or eschewing the inorganic growth path altogether would leave the company vulnerable to the accusation that, in trying to be distinctive, is was becoming too inward looking.

Now that an acquisition has been made, it is easy to cite reasons why it is par for the course for Infosys and good for the country. In recent months, several leading Indian companies across sectors have announced overseas acquisitions.

This has been seen as a sign of their seeking to go international so as to become more competitive and keep growing. On competitiveness, Infosys is already there. So the issue for it is future growth.

On this front, Indian IT companies are up against a significant hurdle, a price they are having to pay for their success. This is the backlash in the western world against what is perceived as job losses to India, especially in the IT-enabled services sector. This has to be countered and simultaneously a model devised for further growth.

A good way to get a foothold in these markets and make a sizeable entry into them smoothly is through local acquisitions. These provide both a locally acceptable front office and a local identity. They can also help counter the job loss accusation by enabling Indian companies to argue that they are, in fact, creating jobs.