What's fuelling the IT boom?

Wipro Technologies vice president for strategic marketing Sangita Singh has been winging her way around the globe. She is just back from Japan and the US. So far in 2004, she has travelled overseas 12 times to the US, Europe and Japan. She is off again this month on another trip to the US. Clearly, business is booming.

In contrast, Singh flew overseas just thrice, and only to the US, in 2002.

Wipro's Singh is not the only IT company executive who's on the move. Suddenly, India's IT companies have discovered that there's business for the taking again overseas. The industry is clocking big buck profits. In the second quarter of this financial year, the revenues of 58 IT companies shot up by 37.14 per cent, while profits were up by over 40 per cent "� reminiscent of the go-go years of 2000 and 1999.

And as business and cash flow in, most of them have embarked upon a remarkable hiring spree. In the quarter that ended on September 30, 2004, the top five Indian companies added close to 18,000 employees, the National Association of Software and Service Companies (Nasscom) reports. That number is close to the 20,000 people the five hired in all of 2002-2003.

Just how dramatic all this is is illustrated by the fact that two years ago the Indian IT industry was singing a dirge. IT companies had stopped hiring, were reneging on offers made at engineering campuses to students and bottomline growth had slowed to a crawl.

The IT boom is back with a bang. So what's fuelling it?

Well, software outsourcing and offshoring have become mainstream. And the top IT companies have done a lot of small things right. Look closer at what companies like Infosys Technologies, Wipro, Tata Consultancy Services (TCS) and Cognizant Technology Solutions have been doing in recent times.

Scale begets scale: One of the biggest reasons for the current boom is the increasing scale of operations of Indian companies. "The outsourcing boom was something waiting to happen for companies that work and think smartly," says Sridhar Mitta, managing director of the $100 million e4e Inc, a technology holding company.

Mitta argues that the top-tier Indian companies and some multinational companies with big Indian operations have managed to benefit from the sheer scale of their operations. Agrees Kris Gopalakrishnan, deputy managing director and chief operating officer at the $1billion Infosys: "As Infosys became bigger in terms of its operations, we found that clients were more than agreeable to increasing their outsourcing portfolio to us. Size clearly allows you to get the largest contracts."

Gopalakrishnan continues: "Managing growth is very challenging but is in a good position to be in. When you become bigger in the size and scale of your operations, from a customer point of view it minimises risk." Infosys has doubled the number of its employees over the last two years from about 16,000 to about 32,000 now.

The point is echoed by Sudip Banerjee, president of enterprise applications at Wipro and the man who runs a Rs 700 crore per quarter business: "Scale is important and today the Indian story is becoming more robust and clients are confident of work being done to exacting standards by companies like Wipro." Wipro has in the last two years added about 17,000 employees to its work force of about 37,000.

Scale has helped TCS too. The first Asian company to breach the $1 billion mark is expected to post revenues of about $ 1.5 billion plus this year. Revenues in the first half of the year have already touched $1 billion. TCS executive vice president Phiroze Vandrewala points out that the pull towards India from clients abroad too has helped. "TCS as a company is experiencing faster growth partly because clients also want to ramp up faster. Today at TCS, it is not uncommon for a client to grow to about 800 people in about six months. Earlier it would have taken a client at least two years to grow to this scale of engagement with us," Vandrewala points out.

Project delivery excellence: And all of this has been aided by the quality of the delivery of projects that Indian companies have managed. Leading research groups like Meta have put the delivery excellence of Indian software companies like Wipro, TCS and Cognizant on a par with that of the best multinationals like EDS Corporation and Accenture and at times ahead of them.

Says R Chandrasekaran, managing director of the New Jersey-headquartered Cognizant: "The most important reason for this kind of growth is that companies like Cognizant have shown excellent delivery capabilities. Once you have such a platform, healthy growth follows."

Expansion into new markets: Indian software services companies once used to focus on North America but many have now expanded operations to China, Eastern Europe, South Africa, Australia, New Zealand and Latin America.

Says a research analyst at an international data tracking company: "From a revenue standpoint, companies like TCS, Infosys and I-flex have started to look at South Africa, Australia and New Zealand. From a development perspective, companies like Satyam, Cognizant, TCS, Infosys and Wipro are looking at setting up operations in Brazil, Hungary, China, Australia and even the Benelux region."

New services are being offered: At the same time Indian companies have been consciously expanding the services that they offer clients. The new services include consulting, infrastructure solutions, package implementation, business process outsourcing and even testing, apart from increasing the quantum of bread and butter engagements like software application maintenance and development.

Says Wipro's Banerjee: "During the downturn Indian companies looked at newer services to increase revenue flow. In the case of Wipro in the last two years we added BPO, consulting and testing services to our portfolio of services. This makes us a compelling candidate for clients that want to outsource."

This applies to TCS, Cognizant and Infosys. Says Vandrewala: "Expanding our portfolio of services has definitely helped and all this is because of the strategy we put in place in 2002-2003. We took a conscious decision to aggressively market lines like engineering services, infrastructure outsourcing and facilities management."

The gambit makes sense. According to Forrester Research, the value of the total North American IT market could touch $250.9 billion by 2008, up from $ 194.7 billion in 2004. Of this, IT consulting alone will contribute $28.9 billion in 2008, up from $ 23.8 billion in 2004. Systems integration (this includes packaged implementation, customised application development and application integration) will contribute $100 billion in 2008, up from $86.2 billion in 2004. Software application-related outsourcing will contribute $112 billion in 2008, up from $ 86.8 billion now.

Gartner, the IT tracking company, points out that even now, despite all the hype, the amount of outsourcing is relatively low and will only gather steam. Gartner reckons that under three per cent of global IT services - related spending of about $606 billion will be on globally sourced services in 2004. By 2007, Gartner estimates that this will shoot up to about 7 per cent or about $50 billion.

Customer mining: Indian companies are not only acquiring more customers but are also selling more IT services to existing customers. Cognizant believes so much in mining its customers that it has more relationship managers than sales and marketing professionals.

Last but not least, more and more outside the Fortune 100 fold today are looking at outsourcing and offshoring to India.

"Clearly, companies in the US have realised that technology investments can give them only limited results. Beyond that one has to focus on costs and for that you need to have an India story," notes Vandrewala. But Mitta has the last word "� Indian companies still have to master the sales side of the business and bring in the same levels of finesse to selling and marketing, he notes.