Thursday, March 23, 2006

Indian IT, next steps - organic or inorganic

Over the last few months (or two years or so), Indias IT companies have discovered that the organic way to growth is not necessarily the best way. They have gone about breaking their current mode of working by acquiring companies across the globe.

TCS is at the forefront with its process based acquisitions. Wipro is there too with its string-of-pearls strategy. But the big difference is Infosys. After its acquisition of Expert systems Australia, Infosys has not acquired anything. Expert systems itself is not very different from Infosys and the work that it does, so the acquisition was not path breaking in itself.

TCS and Wipro by contrast have broken into newer areas be it pension processing, buying into banking product companies or picking up credit card processors, semi conductor design companies etc.

Infosys seems to be a laggard in this space, seems to, being the operative word. Is Infosys becoming too comfortable in its current mode of operation, even as it nears its 25th year of operation and 2 billion USD in revenue?

On the contrary, Infosys is actually going on a different path as compared to Wipro and TCS. Infosys has invested significantly in its consulting wing, which is led (and staffed among others) by former Big Five consultants. It has also sharpened its model by investing in training (it has a huge training centre in Mysore) infrastructure that enables it to impart sharper training. Infosys, though, as seen in this link, "We have acquired a company in Australia and have created a consulting company and are on the look out for good buy-outs. We look at companies for acquisitions based on whether they offer us downstream opportunities," he (NR Narayanamurthy) said.

So, on the one hand, theres inorganic growth. Acquire companies, customers, employees, footprints, mindspace - which is the route currently being taken by Wipro and TCS. This is a tough route with integration of these companies being a big challenge. Organic growth is tougher because a brand and newer areas of operation have to built without an existing base. So, what is the next step to growth. We will see.

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