Infosys to take over clients' staff and assets

IT leader has crossed a psychological barrier

Infosys Technologies has started bidding for infrastructure management contracts which involve taking over clients' employees. "We are getting more comfortable with the idea and the experience is so far positive," S Gopalakrishnan, chief operating officer, said.

He agreed that this was a change from the company's earlier position of being reluctant to take over the employees and assets of clients in order to manage their infrastructure but cautioned that progress along this route would be incremental and takeover of assets would come at a later stage.

Right now Infosys has less than 100 employees who have been absorbed as part of deals and even till a year ago the company was not very open to this idea.

The change of heart has clearly been prompted by the imperative to maintain rapid growth at a time when prices remain "stable", productivity improvements can only be marginal and substantial addition business keeps coming Indian companies' way.

Gopalakrishnan pointed out that at a time when "global IT spending is flat or growing marginally, our share of it is growing, as a result of offshoring becoming mainstream and the many benefits perceived by those who have already offshored." The scope was enormous as Indian IT services exports accounted for only 7.5 per cent of the global market of around $ 200 billion that it could address.

The big challenge before Indian companies was the ability to manage this business growth, which could be done in one of two ways. One was to start projects small and then scale up over 18 months. Clients were so far comfortable with passing on sub-$100 million deals to Indian companies because of their size. To grow fast so as to get bigger deals you had to adopt the other route, take over clients' employees.

The other way to grow both the top and bottomline was to go up the value chain and this was being addressed by Infosys by acquiring a significant consulting capability through the formation of Infosys Consulting, a wholly-owned subsidiary in the US. Gopalakrishnan said the business was "on course" in building a headcount of 70-80 in the first year and "we are pleasantly surprised by the strong pipeline of those wanting to join it."

Infosys' Consulting revenue, which was currently just over 3 per cent of total revenue, would increase, but more important, "the consulting capability was able to reduce implementation cost by 40-60 per cent, compared to those of an MNC." They had also adopted the global delivery model and were recruiting aggressively "but Infosys is responding by improving its services and solutions".

Its key advantage lay in "scaling up its growth through entry-level staff. This was achieved by ensuring that Infosys was an employer of choice." The company managed with a large number of new entrants by having in place its elaborate training schedule. The key to making the whole thing work was "the ability to forecast demand correctly as otherwise you would have a large bench."

The current outlook was positive as the rate of growth of global IT spending, which was at a modest 3-6 per cent, "was likely to pick up in the next three to four quarters." With the phase of rupee appreciation not seen as a problem ahead, the only imponderable and possible downside lay in the future growth prospects of the US economy and its political attitude to offshoring.

The good news was that Indian companies had posted solid growth in the first quarter when "the outsourcing debate was at its peak in the US". But the future attitude of the US leadership, in fact the shape of that leadership itself, to be determined by the outcome of the presidential elections, was wide open.

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Spreading wings

• Global IT spending to grow at a faster rate over the next 3-4 quarters
• Outsourcing is mainstream as experience of outsourcers is positive
• The big uncertainty is post-election attitude of the US leadership to outsourcing