Infosys Wants CapGemini

Just the Kind of news I want to hear.
Music to my ears.
And the Top Indian IT services Companies, on account of better delivery models, better Human resources(the high attrition not withstanding, which is good and shows that the sector is VERY healthy) and cost effective solutions, are today much more valuable than the US or European Counterparts in terms of Profitablity, and Market Caps Obviously.

I had predicted that it won't be too far off when Indian IT Cos Bid for 3X their size US and European Counterparts. I thought that TCS with the TATA's experience of LBOs would be the first to move, but Infosys seemed to have taken the first step here.

Take it on Infy...

Productivity of US and Indian IT professionals?

US IT Professionals More Productive than Indian IT professionals?

That is what a report says based on revenues per employee.
I won't go into explaining how the profitability of many Indian IT companies are better than US IT companies lest I should digress.

But that US IT Professionals are More Productive than Indian IT professionals is grossly mis-stated/analysed.

Revenue Per Employee of an US IT company can not be compared to an Indian It company. The day the two becomes comparable, US Lobbyist and IT professionals will stop crying about being bangalored.

A thousand dollars is still a lot of money, the appreciating Rupee not withstanding, and so, Indian IT companies are OK when they bill an US client 2 thousand dollars for an Indian programmer, because we are going to pay the prgrammer 1000 dollars for the same kind of work that his US counterpart who leaves office at 4 PM on a friday, does, and yet gets paid 5000 dollars . To pay 5000 dollars, taking the same logic(The figures are just hypothetical, I can give exact number if you want), the US IT company needs to bill the client 10000 dollars... That is 5 times.. :)

That is why INDIA is such a hot destination. If Indian Companies start billing the client as much as the US counterpart, the Industry will be dead before the Estimate hits the inbox of the client.

The report was fine, and going by the definition of productivity defined in terms of revenue per employee it is fine, but the report needs to be interpreted in a more logical way, no?

Disclaimer: I work for an US IT company, and have wokred for Indian IT companies as well, and have been actively involed in Estimatation process. The numbers I quote are just figurative to drive home the argument.

And yes, on output terms, and delivery, Indian IT pros are very good.

Indian IT Services Companies are the Future!

In net income, IBM, HP, ADP, Accenture, CSC, TCS, Infosys, Wipro, ACS and Atos Origin lead the global pecking order, while the top 10 list by m-cap includes IBM, HP, ADP, Accenture, TCS, Infosys, Wipro, EDS, CSC, and Cap Gemini. [source]

TCS might muscle itself into the top 10 IT services companies' club sooner than it anticipated. Though the Top three Indian IT services companies are nowhere near in terms of topline, The Top Indian IT companies comes in the top 10 in terms of net Income and Market capitalisation. Two parameters that is used in acquiring compapnies. These companies have been playing around with acquisitions for sometime now with small sub-100 million dollar acquisitions. Perhaps they were warming up, but with the kind of Cashflows and Market Value of the Indian IT cos, it will not be very far, let me even go on to say 2007-08, they Big companies like Accenture, EDS become take over targets of Infosys, TCS. These companies might not want to sell out, but there are some companies(in the top 10) that are already struggling with slow growth, and losing Bids.

Financiers are willing to back Indian companies in LBOs, Indian companies which were never in the radar, in Industries where we hadn't even proven ourself.

Outsourcing however is a different story altogether. Indian IT industry pioneered outsourcing. Not so long ago, Industry Oracles lamented about how Indian IT companies might lose out to American MNCs since they were based out of where the clients are. During that time, the US MNCs knew that more than their vicinity to clients, they needed to build up capacity in India. They were imitating what the Indian Comapnies were doing. Now who will the Financiers back?

It is not a question of which companies will be acquired. It is just a matter of which Company will be the first to move amongst TCS, WIPRO, Infosys and Cognizant. Perhaps Wipro going by past records, or perhaps TCS going by recent records.

India and Software Product Companies

I was reading an article in Business Today, on India's Hottest Software Product Companies (Link requires subscription), which lists companies like Sasken, Ittiam, iFlex and Infosys (Finnacle). One thing was common with all the companies. They are not even minnows. Finnacle's Contribution to the topline of Infosys is not even worth a mention. But just I saw it, I saw an article today that Infosys is eyeing some foreign acquisitions for strengthening its stance in the product space.

Sources said SmartStream, with over 1,000 clients, presents an ideal target for Infosys, which in has admitted to looking for acquisitions in mature markets to propel its banking solution product Finacle into global play. Its main competitor, Flexcube from i-flex, has got Oracle as its majority stakeholder giving it the much needed impetus in the global banking market.

Most of the Indian Software Products company are small time enterprise software companies filling a niche, or with some Financial Applications company serving an unserved market, with the exception of market leader Iflex, but then even Iflex grew by serving underserved markets, namely the Unites States of AFRICAS.

Having worked in a Mid-tier IT services company, trying to build an enterprise Software Application, read product, in the core team, I can understand why Indian IT product companies fail. Oh wait! We didn't even try, to fail. That IT servcies is where should grow, and that If at all we must look at Products, we should look at Internet Products, deserves a full post and I will write a full post on that.

Product Development entails huge investments, is risky, and takes a long gestation period time. There are only two ways to do this. You should be part of a conglomerate, like the TATAs to be able to invest huge sum of R&D dollars.. (TCS should actually spin off a Product company.) or The idea that you have should be that of a super product. Something that will change the world, to put it easily, in which case there will be investors queing up to wait till it starts to pay off.

When Indian IT behemoths tries their hand in product, they do it as a mix of product-services. They want to develop a product like they do a fix bid Applicaton Outsourcing or Software Project. If Infosys wants Finnacle to Suceed, and the market is huge, they should spin off a Company, and use some of the CASH lying in their books to aggresively market the product and fix it proper. Infosys can always generate extra revenues on maintenance and Implementaion.

As for why Consumer Software never took off India, it is just that it just never happened. If the idea behind Skype or Youtube was to come from India, nothing would have stopped it. Not that Indians are less creative, but it just never happened. Expect it happen sooner than not, though...