Around 7 years back someone from India sent me a SWOT of Infosys – created by some investment analyst. The number one strength mentioned was “Brand Value”. Since I was from the IT industry in the US and had worked in the consulting industry for some time, it amused me. Little known fact – Infosys had not accepted any work within India until 2009 or so. And, in US, the Indian IT companies have always been known as outsourcing companies. There have been some efforts by Infosys Consulting and WIPRO consulting to do high end transformation work but the scale is very limited. More importantly, the Account managers in the parent companies call the shots in every sale cycle – due to relationships – and they always cop out to go for Cost selling as opposed to trying Value selling. So, if the conversation is always that “If he can do for 25 cents, I can do that for 20 cents, so give me the contract” as opposed to “If he can do for 25 cents, I will do for 35 cents but give you a value of 60 cents”; then the consulting personnel suffer in the sales cycle and scale is usually a casualty. Unless you are willing to increase your profile via advertising and go for large scale acquisition.
The fact is that culture of the Indian IT companies do NOT lend themselves to that of the consulting world.
Talking of the brand value, the #1 strength of Infosys per that report. The intriguing thing was that Infosys’ brand value was the highest (India), where it had Zero revenue by then; and the country where it had the highest revenue (US), its brand value was that of a low end IT firm.
If the company wanted to come out of the commodity market business (outsourcing) and make a mark in high end consulting (transformation etc) and make it a viable business, then it needed scale. As did the other companies in IT Industry from India.
Scale in consulting and IT means lots of large acquisitions. That is how you can have economies of scale where you can close out the competition.
In the new fiscal Accenture’s growth has seen fascinating growth.
Accenture Plc reported 13.5% growth and added $4.72 billion in incremental revenue in the financial year ended August 2018, a shade lower than the combined $4.78 billion new revenue of Tata Consultancy Services Ltd (TCS), Cognizant Technology Solutions Corp, Infosys Ltd, Wipro Ltd and HCL Technologies Ltd.
This has been on the back of an acquisition spree.
Last year, Accenture spent $750 million in buying companies, less than the $1.8 billion it spent to buy companies in 2016-17. However, Accenture has again upped its acquisition spend in 2018-19.
“This year, we would expect to spend up to $1.5 billion, consistent with our capital allocation strategy. As always, given the right opportunities and the right circumstances, we could certainly spend more than that,” Accenture’s Chief Financial Officer David Rowland told analysts after the company declared its earnings.
Accenture added 34,309 employees last year to take its total workforce to 459,178 people. Cognizant and the four big Indian IT firms added only 13,772 employees in 2017-18.
Vishal Sikka was taking Infosys in that direction. But as soon as he was taken out, the whole structure and thinking that he wanted to create was axed.
One of Sikka’s pillars of growth was to be acquisitions and Infosys would spend as much as $1.5 billion in buying companies. However, his biggest buy–the $200 million acquisition of Israeli firm Panaya–turned out to be his undoing.
When cofounder Nandan Nilekani returned to become the chairman of the Infosys board, he promptly took the axe to the onsite power centre that Sikka had created–Palo Alto.
Acquisitions by the Indian IT firms
It is clear that these are not enough. If one firm Accenture is doing as many acquisitions in a year as top 4 Indian IT firms are doing, then they clearly are and will remain laggards in terms of growth.
When you Core Competency is at the Mercy of another nation’s Immigration policy
The new Trump administration has put a clamp down on the H1B visas. Before this the visa fee had been increased many time. When thousands of your employees are on H1B visas and you are paying that fee, then increase by $1000 for just 5000 employees meant a hit of $5 mn on a company’s profit margin. If that was not enough warning that the direction of the Indian IT companies without any significant scale in US and Europe was not enough, Trump administration has clamped down on visas in a significant way. That should create major panic. And still, people like Nandan Nilekani are talking about creating “listening posts” in Palo Alto.
“I think this is a strategy, which has come about by a process of both top-down and bottom-up work. It’s a strategy which everybody has bought into. We see Palo Alto office as a listening post to the latest developments in tech happening in Silicon Valley,” Nilekani said in October.
Nilekani clearly does not get it. Does he? When majority of your business is in US, creating listening posts there while having the entire top management in a country which you deliberately choose to ignore as a matter of corporate policy, is not “going back to your roots”….. its going into the ground and dust. Nilekani’s cluelessness rivals that of the smart investment analyst who found “brand value” to be Infosys’ #1 strength! Except it was true in a place where its revenues were zero!