Why Infosys doesn't want government contracts [Strategy] [Times of India]
(Times of India Via Acquire Media NewsEdge) BANGALORE: Infosys is changing course in its India business to focus more on deals from corporations rather than government, which now contributes about 90% to the company's revenue in its home market.
The government takes a long time to finalise contracts and implementation cycles are long, adding to the pressure on Infosys, which is looking to make up for project delays and cancellations in its main markets -- the US and Europe -- from where it earns about 85% of its income.
"We have sufficient government business in our India order book and deal pipeline to keep the momentum going for at least a year," said V Balakrishnan, a director on Infosys overseeing the India business, the BPO unit and banking product Finacle.
"So, we believe this is a good time to reorient ourselves and aim for greater share of private sector work." ET reported in September that government technology projects worth several thousands crore of rupees had stalled as bureaucrats delayed signing off on spending decisions, fearing scrutiny in the wake of several corruption scandals during the year.
A late entrant to India's $10-billion (Rs 55,000 crore) IT services market, Bangalore-based Infosys faces stiff competition from early movers in the space such as IBM, Tata Consultancy Services and Wipro.
Infosys gets 1.9% of its $7 billion sales or about $135 million (Rs 740 crore), in annual revenue from India, compared with larger rival TCS, which gets 7.5% of its $10.8 billion revenue, or $810 million.
Balakrishnan said Infosys sees opportunities in energy and utilities, besides the telecommunications and retail sectors, where the company has begun working with some of the large players.
Balakrishnan, who was Infosys's chief financial officer until recently, stepped down in October to make way for younger colleague Rajiv Bansal. At that time, co-founder and chairman emeritus NR Narayana Murthy had said the board would consider Balakrishnan along with other contenders for the role of chief executive in early 2015 when SD Shibulal retires.
Manish Bahl, vice-president and country manager at Forrester, said with a general election due in 2014, it is unlikely that government will announce any more big projects and would likely go cautious on technology spending decisions.
While the effort to diversify its revenue portfolio in India may be a good move, analysts said Infosys still needs to get a few things right to successfully compete in the local market.
"Infosys needs to ensure the ability to deliver solutions at competitive price points, besides investing in building a mature network of partners," said Milan Sheth, partner at technology advisory Ernst & Young, adding the company should also cater to small and medium businesses.
"Competitors like IBM have their networks spanning into tier II and tier III cities, giving them a wider reach." And competition is only going to increase as more companies that earlier focussed on outsourced work from the US and Europe look for alternative markets to support growth. "We believe IT services companies will get more aggressive on domestic deals even if they come at lower margins, in order to support growth," said Bahl of Forrester.
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