Infosys’ Nilekani says diversifying into geographies other than the US holds the key to success

Is it finally the light at the end of the tunnel? Judging from the Q3 results announced by Indian software’s Big Three Infosys, Wipro and Satyam the dipping line seems to be straightening out. Rajneesh De analyses the results and the lessons they hold for the rest of the software pack

The economic recession in the US, 9/11, and the untimely demise of Dewang Mehta all ensured that 2001 went down in infamy in the annals of the Indian software industry. After witnessing mind-boggling three-digit growth rates for several years, last year saw a chastened industry scaling down growth projections to a more conservative 30-35 percent. However, the New Year seems to indicate a turn for the better. The sense of optimism emanates from the impressive FY 2001 Q3 results declared by the Big Three of the Indian software industry Infosys, Wipro and Satyam.

But does the success of the triumvirate imply that Indian Software Inc is back to its salad days? Perhaps the best course of action would be to analyse the reasons behind the success of the trio and then examine if other software companies can replicate the same formula. Infosys’ Q3 income, ending December 31, 2001 was pegged at Rs 660.81 crore, a 23.04 percent growth over the Rs 537.07 crore generated during the corresponding quarter of the last year. Even in a dismal year like 2001, Infosys witnessed a growth of 1.64 percent over revenue of Rs 650.13 crore generated during Q2 2001. Wipro’s total income in Q3 was a staggering Rs 2,551.9 crore, an 18 percent growth over the corresponding quarter in 2000. Satyam’s Q3 income stood at Rs 435.8 crore, up by 33 percent from Rs 327.6 crore in the corresponding quarter of the last fiscal, and up by 2 percent from Rs 426.6 crore in Q2 2001.

Reasons behind the rise

Satyam’s Ramalinga Raju says the US still remains its main focus, but foraying into other geographies is a must

Nandan Nilekani, who will soon take over the CEO mantle from N R Narayana Murthy at Infosys, believes the attempt to tap alternate geographies as well as the Indian market has paid dividends. Infosys’ figures support his claims. While North America revenues dwindled to 70.9 percent of total revenues, from 71.1 percent in Q2 and 73.6 percent in the corresponding quarter of the last fiscal, the corresponding figures for Europe and India stood at 19.4, 18.9, 18.8 and 1.9, 1.8, 1.5 percent respectively.

Even for Wipro, revenues generated from India stood

at an impressive Rs 846.2 crore against Rs 938.6 crore from the US. Ramalinga Raju, Satyam’s head honcho confirmed that even Satyam’s spread increased in other geographies though US still remains its largest market. And the silver lining for the Indian software industry seems to be the fact that even other software biggies have learnt this lesson. TCS, with an already strong presence in Europe, seemed to further augment its position this quarter, while other software companies too started focusing on Europe and Asia-Pacific.

Another direct cause for the increase in the troika’s topline seems to be their success in adding new names to their kitty of clients. Infosys added 33 new clients during this quarter, including Texas Instruments, Aizawa Koatsu Concrete KK, Spatial Wireless and Target Corporation in the US. Even in India, Infosys added new clients like ABN Amro Bank and the Cosmos Co-operative Bank during this quarter. Even Satyam managed to add 27 new clients to its roster during this quarter. Vivek Paul, CEO, Wipro Technologies, revealed that they too added 27 new clients during this quarter, including six Fortune 100 companies. Again, this trend holds true for most other leading Indian software firms too, and bodes well for the software industry. The moot point seems to be that in these troubled times, as companies venture into new geographies, adding new clients is imperative for continuing healthy growth.

However, adding new clients indiscriminately can be a double-edged sword, a fact the Big Three seem to have realised in a bleak year like 2001. More so, in times when everyone admits that the pressure on billing rates is bound to increase in Q4. The new client addition game often leads to companies concentrating more on quantity than quality, thereby impacting the bottomline. Satyam officials offer an example: “If a company achieves a turnover of Rs 10,000 crore by virtue of adding more clients, it ultimately will turn out that most clients would be pretty insignificant, contributing perhaps 2-3 percent of revenues, and finally, the purpose of the whole exercise will be defeated.” The conclusion: companies should maintain a fine balance between adding new clients and adding quality clients. Not only do companies move up the value chain that way, it ultimately affects the bottomline too.

Wipro’s Paul says the company added 27 new clients in the last quarter, a sign that the clouds may be clearing

The other vital lesson from the Big Three results seems to be the realisation that though it is necessary to venture into new geographies, companies should always augment their traditional areas of strength. In these troubled times, it could be disastrous to move to new areas of competency without building upon existing competencies. The Q3 results are a pointer to this fact. For example, in the case of Infosys, the biggest revenue stream continues to be the banking and financial services vertical, contributing 34.2 percent of total revenue, compared to 36.6 percent in the same quarter last fiscal. In the case of Wipro Technologies, which has always been an exception and has thrived on outsourced R&D services, the same continued to be a high growth area contributing 51 percent of its global IT service revenues. With telecom being one of the most troubled sectors in this quarter, one wise decision that all three implemented was not to venture too deeply into this space. Even this lesson seems to have been well learnt, with other firms such as TCS adding more clients in the financial sector only, while NIIT too is concentrating on its core competency areas of learning and education.