How Indian IT suppliers are navigating recession

News Analysis

How Indian IT suppliers are navigating recession

Karl Flinders

Indian IT suppliers are facing the toughest slowdown in business in their decade-long history.

But in interviews with Computer Weekly, senior executives at India's two biggest IT suppliers revealed an appetite for growth during the economic stagnation.

Tata Consultancy Services (TCS) and Infosys have been on the world stage for about 10 years and have so far reported nothing less than double-digit growth.

They have seen the dotcom boom and a recession, but nothing like the current slowdown. The Y2K crisis at the end of the 1990s helped these companies win major contracts and establish themselves as global players.

Single-digit growth

But despite the recession, they still expect to grow, albeit in single digits. Both companies say they are flexible enough to react to the slowdown and are changing their strategies to ensure they continue to prosper.

In contrast to some of their western counterparts, such as IBM and HP, neither firm is slashing jobs in response to the slowdown.

And although each company is worth billions of pounds, like every Indian outsourcer they have gained only a couple of percent of the potential business available.

"This year is going to be tough. We are used to growing at double digits. Even during the last recession in 2001 we were growing at 20%," says BG Srinivas, UK head at Infosys.

Meanwhile, TCS's head of global communications, Pradipta Bagchi, says the company grew 23% last year but expects only single-digit growth this year.

Building business strength

Both companies have identified strategies that will not only see them through the recession, but will enable them to emerge from it stronger. Some of their western counterparts could be storing up difficulties in the future by cutting costs too much.

Bagchi says that TCS has advantages over competitors, including its skills with the latest technologies and a highly motivated, skilled and mobile workforce.

"India is cheaper, there is no doubt, but price is not the only reason that customers choose it," he says.

TCS is India's biggest IT service provider. It is not recoiling into its shell amid recession. Rather, it is targeting growth in previously untapped areas.

Bagchi says the company is currently selling its services as packages to appeal to cash-strapped customers. "Customers are looking for integrated solutions such as IT, infrastructure, BPO and testing services from one supplier. Over one-third of the deals we won last year were for two services or more."

Most of TCS's big customers are based in Europe and the US, where businesses are cutting costs heavily, he says. As a result, Bagchi feels the company has a great opportunity to grow in other parts of the world. Brazil, Russia, India and China, known as the BRIC countries, are developing fast and offer good business opportunities to IT suppliers, while western Europe and the US stagnate.

TCS is also planning to profit from the global financial services sector.Its acquisition of Citibank's captive BPO unit in India has opened up new business. In contrast to the traditional recessionary reflexes of cutting jobs and closing units, TCS paid £300m for the Citi unit and gained an extra 13,000 employees.

"This gave us the skills and experience to fully service banks," says Bagchi.

He says as well as retaining the business processing responsibility for Citi, it has already picked up new banking customers.

Srinivas at Infosys also sees the banking sector as an opportunity to grow. He says the company's core banking software known as Finacle, which is basically an ERP system for banks, has been taken up by tier-two banks in Europe. Banks are trying to replace legacy systems because their current systems are not flexible enough to react to new business models and they are not compatible with new financial services regulations.

Staffing flexibility

Perhaps the greatest advantage that Infosys, TCS and other Indian companies have over their western counterparts is the ability to react to market conditions through a highly flexible workforce.

About 30% of Infosys' staff are known as "bench workers", which means they work full-time when a project is on but are retained even when there is no work.

"When the bench are not working on a project, they are doing things such as building new platforms and developing intellectual property for Infosys," says Srinivas.

This will help the company move into new markets quickly and ensures the business does not suffer through under-investment in the long term, he says.

"The current market is challenging for all of us, but we think we will weather it better than most and come out stronger because this is the time we are investing in our employees, our business and building business models for the future," says Srinivas.

While western IT outsourcing service providers such as IBM and HP are slashing jobs to meet tough cost-cutting initiatives, India's big players are investing in employees. It is only a matter of time before Indian suppliers which grew because they offered customers low-cost services will overtake western competitors through competitive advantages such as flexibility, ambition and employee commitment.


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