The grey in Infosys silver clouds

Billboards advertising jobs painted in IBM8217;s familiar blue dot Bangalore like invading tanks

When an army moves a high-profile general to a frontline position, you know that key battles are imminent. For Infosys, the war to retain its edge in the global services revolution could be tougher than it appears. That is perhaps why its chief financial officer, T.V. Mohandas Pai, is shifting places to head human resource operations. As the company announced Pai8217;s redesignation along with its full-year results for 8217;05/8217;06 on Friday, there was plenty of ground for silver jubilee exultations. But there is reason to believe that there are some important eyebrows deeply furrowed in the corporation.

First, the good news. Infosys has completed 25 years of existence, and revenues crossed a milestone 2.0 billion in the fiscal year that ended last month, with net profit at Rs. 2,479 crore, up 34 per cent on the year. The latest quarter also saw Infosys8217; headcount cross a milestone 50,000 to reach 52,000-odd people. The company8217;s cash chest was comfortably above one billion dollars, enough to award a bonus issue of one share per share, in addition to a special Silver Jubilee dividend.

All these apart, there are some grey linings to its silver clouds, to turn a metaphor on its head. It was symbolic that the company could not exceed profit expectations of analysts who track the company for its formidable investors. The market is not so easy because competition is biting at both ends for Infosys 8212; from the upper end multinationals on the one hand, and mid-sized Indian firms, on the other. What this means is that premium billing rates cannot be taken for granted, and talented workers must be herded away from poachers.

Some time last year, IBM 8212; the world8217;s biggest maker of computers 8212; changed colours when more than half of its revenues came from services, based on engineering skills and human resources. IBM is now no longer a simple 8220;box maker8221; but a services giant, biting at the likes of Infosys, TCS and Wipro, in the tussle for big outsourcing deals to maintain or develop software. And fellow Western companies like Accenture and Electronic Data Systems EDS are also in the fray for the same business. A few years ago that would not have been a problem for Infosys because the company was synonymous with India 8212; which meant a capacity to hire low-cost, high-skill engineers. But now IBM, Accenture and EDS are furiously expanding their staff presence in India, competing for the same global business at increasingly comparable costs8212; with perhaps stronger international brand value.

IBM now has about 40,000 employees in India, its second highest after the US. Staff growth in India was around 70 per cent in 2005. If the trend continues, IBM8217;s presence in India could match if not overtake Infosys in a year or two. Billboards advertising jobs painted in IBM8217;s familiar blue criss-cross Bangalore like tanks of an invading army. Accenture, meanwhile, has at least 16,000 employees in India, having quadrupled over the past three years, and last year announced plans to recruit between 30,000 and 50,000 between China, India and the Philippines over three years. For Infosys this means a tough challenge to retain the talent which gave it the edge in the 8217;90s.

A few days ago, MphasiS-BFL Ltd decided to accept an offer by EDS to acquire a majority stake in it. This should put it in the same league as Accenture and IBM. Earlier this week, mid-sized Zensar Technologies announced a 30 million revenue deal wih Japan8217;s Fujitsu, in another signal that big global giants and mid-sized Indian firms are joining hands. Last month, respected global private equity firm General Atlantic Partners GAP sealed a deal to buy 15 per cent for Rs 300 crore in Chennai-based Hexaware Technologies. GAP is the sort of high-profile investor whose executives use global muscle to help the companies they put their money in.

Companies like Hexaware , Zensar and MphasiS, which four years ago would have been thought to be small fry, are acquiring a new pedigree while EDS, IBM and Accenture build regiments to attack Infosys. That seems like a pincer attack 8212; not a Silver Jubilee gift.

madhavan.ngmail.com