International Business Machines Corporation (IBM) is expanding in India and grabbing enough customers to take the top spot in the country’s domestic information-technology (IT) market from local rivals.
While Tata Consultancy Services (TCS) and Infosys Technologies Ltd have won over US companies with cheaper labour and low capital costs, IBM has snapped up contracts with some of India’s largest companies, such as wireless carrier Bharti Airtel Ltd. The strategy would 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 had hired more than 70,000 employees in India, taking advantage of the “hyper-growth” there by helping domestic companies develop infrastructure, said Sandip Patel, country managing partner (services). IBM may also attract new customers from India’s Satyam Computer Services Ltd, which is embroiled in the country’s largest accounting scandal.
India was 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 would grow 5.3 per cent in the year starting April 1, the International Monetary Fund (IMF) said in March. The US economy will shrink 2.6 per cent this year, the IMF projects. IBM’s sales from India increased more than from any other country in the past three years.
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 was helping emerging markets develop, as opposed to just focusing on cost cuts, said Edward Jones & Co analyst Andy Miedler.
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“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 by building the computing infrastructure.”
IBM, the world’s biggest computer-services provider, has more than 13 per cent of the Indian market, which includes technology and business consulting services, according to Gartner. Tata Consultancy, India’s biggest computer-services company, has 9.7 per cent and Wipro Ltd has 4.5 per cent. Infosys, India’s second largest computer services company, has 0.2 per cent 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 unfavourable, 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 centre for the 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 per cent last year, compared with 15 per cent in China and 18 per cent in Brazil. The company doesn’t break out the dollar value of revenue from those countries. Sales growth in the US, IBM’s largest market, amounted to 2.9 per cent.
Indian outsourcers such as Tata Consultancy and Infosys didn’t initially invest the capital necessary to land large domestic jobs, which were mostly about developing infrastructure, said Allie Young, an analyst at Gartner.
Tata Consultancy gets 8.9 per cent of its revenue from its home country. Infosys gets 1.3 per cent of its sales from India. They were slowly shifting away from just providing software services aimed at cutting costs, toward longer-term outsourcing deals in India, Young said.
All might 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.