News

Keep an Eye on the 'India-3'

IT services providers TCS, Infosys and Wipro are riding massive growth and could challenge IBM, Accenture and HP/EDS.

Quick: Which of the following developments in the arena of global systems integrators and services providers was more significant?

  • On Aug. 26, Hewlett-Packard Co. completed a $13.9 billion deal to buy Electronic Data Systems Corp. According to HP, the value of the EDS acquisition makes it the largest yet in the IT services sector and the second-largest acquisition in the technology industry (since HP acquired Compaq in 2002). At the end of each company's 2007 fiscal year, their combined services operations amounted to revenues of more than $38 billion on the efforts of 210,000 employees in 80 countries.
  • A day earlier, Infosys Technologies Ltd. came to terms on a $753 million cash purchase of U.K.-based SAP AG consulting company Axon Group plc. Axon had revenues of $378 million in calendar year 2007. It operates in the United Kingdom, North America, Malaysia and Australia. The deal's billed as the largest overseas IT services acquisition yet by an Indian company.

If the HP-EDS megadeal seems the obvious choice, consider an intriguing new prediction by the IT observers at research firm Gartner Inc.

According to a mid-August research news release, Gartner contends that Tata Consultancy Services (TCS), Infosys and Wipro Technologies are emerging as the next generation of IT service megavendors. Gartner considers these three so significant that it's taken to calling them the "India-3."

"These vendors are increasingly being considered for strategic service deals, and will augment or, in some cases, replace today's acknowledged megavendors by revenue -- IBM Global Services, Accenture and EDS -- in this space by 2011," Gartner researchers predicted in their news release. Gartner issued its note after the HP-EDS deal was announced in May but before it closed in August.

How the India-3 Stack up Against the Current Megavendors

Company Revenues Growth Rate * Headcount Market Cap
Tata Consulting $5.7 B 32.45 % 111,407 $27.8 B
Infosys $4.2 B 35.15 % 91,187 $23.6 B
Wipro $3.4 B 37.94 % 82,122 $17.4 B
IBM Global $54.1 B 12.12 % 368,558 $149.7 B
Accenture $22.1 B 4.07 % 170,000 $23.9 B
EDS $21.5 B 17.69 % 139,000 $9.5 B
* SOURCE: Gartner Inc. compilation from company annual reports, Capital IQ, OneSource, Hoovers, 10-K filings and direct interviews

Dramatic Growth
Gartner analyst Partha Iyengar said the India-3 continued to post dramatic growth numbers even after breaking into the $1 billion-plus revenue range. That's a level achieved by only 100 service enterprises globally -- and one that ordinarily slows a service firm's growth as the company reaches maturity.

TCS is the biggest of the India-3, with about $5.7 billion in 2007 revenues. Its revenue growth rate over the past three years was 32 percent in 2007, 45 percent in 2006 and 33 percent the year before. Infosys, at $4.2 billion in revenues, grew at 35 percent in 2007, 44 percent in 2006 and 35 percent in 2005. Wipro, with $3.4 billion in 2007 revenues, grew at 38 percent in 2007, 36 percent in 2006 and 34 percent the year before.

By comparison, IBM's $54 billion in services revenues (according to Gartner's estimate), saw 12 percent growth in 2007 and 2 percent growth in each of the last two years. Accenture, at $22 billion, had growth of 4 percent in 2007 and 8 percent in 2006 after falling half of 1 percent in 2005. EDS, with $21 billion in 2007 revenues, grew a little faster-18 percent, 7 percent and 13 percent over those three years.

In sum, the India-3 have been growing at 30 percent to 40 percent a year, while the existing megavendors have growth in the single digits or low double digits.

Population Estimates 2008

Rank Country or Area Population
1. China 1,330,044,605
2. India 1,147,995,898
3. United States 303,824,646

Population Estimates 2026
(First year that India is projected as the world's largest nation)

Rank Country or Area Population
1. India 1,465,888,324
2. China 1,455,770,679
3. United States 352,455,788
SOURCE: U.S. Census Bureau, International Data Base, www.census.gov

Driving Success
The India-3 firms are riding several trends. India has emerged as a global economic power. There's an increasing acceptance of offshore outsourcing. And India's population is growing to the extent that the U.S. Census Bureau projects that the country will pass China as the world's most populous nation by 2026.

According to Gartner, the India-3 companies share four critical competencies that are driving their success: "process excellence; world-class HR practices; providing high- quality services at a low cost [and] the achievement of significant and disproportionate 'mind share' compared to their actual size."

India-3 Dossiers

Tata Consultancy Services (TCS)
Chief Executive: S. Ramadorai, CEO and managing director since 1996
Int'l HQ: Mumbai, India
Slogan: "Experience Certainty"
Notes: TCS' U.S. subsidiary (directly held) is Tata America International Corp. Globally, the company has 18 direct subsidiaries and 33 indirectly-held subsidiaries. TCS is part of the Tata Group, an Indian industrial conglomerate. TCS was founded in 1968.
Microsoft relationship: Microsoft is one of 24 TCS alliances (along with IBM, HP, Oracle, SAP, Red Hat, Sun and others).

Infosys Technologies Ltd.
Chief Executive: S. Gopalakrishnan, CEO and managing director since June 2007
Int'l HQ: Bangalore, India
Slogan: "A Flat World Company"
Notes: Infosys, established in 1981, has 16 offices in the United States and has locations in 22 countries. The company has five subsidiaries.
Microsoft relationship: Microsoft is one of 19 Infosys alliance partners.

Wipro Technologies
Chief Executives: Girish S. Paranjpe & Suresh Vaswani, joint CEOs since March 2008
Int'l HQ: Bangalore, India
Slogan: "Applied Innovation"
Notes: Founded in 1945, Wipro Ltd. diversified into IT in 1980 and took the IT business global in 1992.
Microsoft relationship: Microsoft is one of Wipro's seven Global Solution Partners. In July, Wipro implemented Microsoft Dynamics AX on a global basis -- for Microsoft.

-S.B.

Major Challenges Ahead
However, the India-3 have a lot of ground to cover before they catch IBM, Accenture and (now) HP. Iyengar contends that the India-3 will need to come closer to the U.S.-based firms' revenue-per-employee figures to sustain their growth. Over the last four years, IBM Global Services, Accenture and EDS have had revenue per employee in the range of $130,000 to $192,000. The India-3 have ranged from $32,000 to $51,000.