Infosys prepares for tech evolution

Future of high-tech moves from US as Asia Pacific, especially Infosys, is set to play greater international role.

BANGALORE // The sprawling, high-tech headquarters of Infosys Technologies in Bangalore is a shining symbol of India's brisk economic ascent in recent years. It is a sprawling, impeccably landscaped complex of gleaming spheres and pyramid-shaped glass buildings that includes restaurants, a yoga centre and a bowling alley.

But Infosys, India's number two software exporter, has like many other IT companies been hit hard by the global economic slowdown. The number of its clients has dropped only slightly, to 571 from 586 in September last year, but the NASDAQ-listed company has seen pricing drop almost 5 per cent in the past six months as its core financial clients cut technology spending and demand lower rates for products and services.

"In the downturn our deals haven't dramatically disappeared, but we are feeling the pressure of project delays and tightened consumer spending," says SD Shibulal, the chief operating officer of Infosys. "Times are tough." The growth rate of India's US$60 billion (Dh220.38bn) IT industry, once growing at a rate of 30 per cent year on year, has plumbed to single digits since early last year, hampered by the fluctuation of the US dollar, then the financial crisis.

This financial year, the industry is expected to grow at a meagre rate of between 4 per cent and 7 per cent, says Nasscom, the association of Indian software and technology companies. Global IT spending was likely to decline 5.2 per cent this year, making it the worst year on record for the industry, says Gartner, an IT research and advisory firm. But a slight recovery is forecast. Gartner predicts global IT spending will rise to $3.3 trillion next year, a 3.3 per cent rise from this year.

"Next year, starting from April we will see double-digit growth coming back," says Som Mittal, the president of Nasscom. But the industry is expected to grow at a much slower pace than in recent years. To adapt to the shift in consumer preferences, Mr Shibulal says Infosys is concentrating on new engagement models (NEMs) to enhance growth. He says that by adopting these models, clients can capitalise on better opportunities.

Through NEMs, businesses can brace themselves for improved demand without large investment costs, he says. It is also seeking large outsourcing deals. But more significantly, Infosys and other IT firms are looking to tap into new growth markets. Traditionally, Indian IT and outsourcing firms have earned a little more than half of their revenue from the US. But they are now looking to offset their exposure to a US market that has been battered by recession by aiming for regions of high growth.

Continental Europe, which accounts for between 20 per cent and 30 per cent of the industry's revenue, has been a largely untapped market for Indian IT firms. At the Reuters India Investment Summit in Bangalore last month, IT giants such as Infosys, Wipro and Mahindra Satyam said they were looking to strengthen their footholds in countries such as Germany and France. Mr Shibulal says Infosys also counts Australia, Canada, the Middle East and Africa as emerging markets for expansion.

But the US, which contributed 63.2 per cent of Infosys's revenue last quarter, will remain the major market, considering it constitutes most of the IT spending. In the long term, Infosys aims to reset its revenue from the US and Europe at 40 per cent each, while the rest of the world is expected to contribute 20 per cent. But for the global IT industry, the US is not expected to remain the main driver of growth in the near future.

IT spending in the Asia-Pacific region is expected to grow by 5 per cent to reach $515.6bn next year, representing a speedy "V-shaped recovery" for IT companies there, Gartner says. "Emerging regions [such as India] will resume strong growth - by 2012, the accelerated IT spending and culturally different approach to IT in Asia will directly influence product features, service structures and the overall IT industry," says Peter Sondergaard, the global head and senior vice president of Gartner.

"Silicon Valley will not be in the driver's seat anymore." Infosys plans to increasingly tap into its domestic market, Mr Shibulal says. The Indian market contributes only 2 per cent of Infosys's total revenues, while its main competitors such as Mahindra Satyam, Tata Consultancy and Wipro have aggressively vied for lucrative government projects in the country in recent years. T"The Indian government has enhanced its IT spending considerably, with bids going to low price and high technology," says Mr Shibulal, who expects to generate $1bn from the Indian market in the next two years.

"We must tap this market." @Email:[e-mail]