Infosys CEO Salil Parekh dismisses growth concerns

Emerging IT market, as Infosys sees it

Infosys CEO Salil Parekh reassured investors that the IT services behemoth was not facing a growth crisis because of the replacement of traditional sourcing models with digital services.

He said new age services — such as analytics, marketing, digital product design, digital system integration, cloud migration and cyber security were already at a huge size, and could be tapped to drive the company’s growth going forward.

Like other technology service oriented companies, Infosys has been facing a sharp slowdown in its revenue growth in the last four years or so as clients increasingly stopped renewing mega deals to install, customize and maintain traditional enterprise software.

Instead, companies have been moving from traditional ‘packaged’ software from the likes of SAP and Oracle to newer, lower-cost solutions based on cloud computing technology. The problem, for companies like Infosys, is that such solutions require a far lower degree of effort to get them running, shrinking the size of the contracts handed over to outsourcing partners.

The shift has hurt the business models of India-based outsourcing companies, which made a name for themselves thanks to the almost limitless supply of low-cost engineering graduates in the country to manage those tasks.

Infosys, for example, has revenue of around $11 bln (Rs 70,500 cr) and 200,000 employees, and is one of top five generators of jobs for Indians.

The shift to more efficient, cloud-based solutions could not only hurt growth at Infosys and TCS, but also severely curtail job prospects for Indian engineering graduates.

Infosys has seen its annual growth rate slip to just 7.2% in the year ended March from the 20-25% range seen six years ago.

Though Pathak did not address the employment aspect, he clarified that on the revenue front, his company was not looking at any kind of a dead end at all.

Instead, said the Infosys chief, the new and emerging areas of technology offer huge avenues of growth. In all, said Pathak, contracts worth around $160 to $200 bln are being handed out in these emerging areas every year, compared to Infosys’ revenue of $11 bln.

Pathak called the new areas (see picture) the ‘agile digital’ market, and said it is growing in the ‘high teens’ or even 30% growth, “according to some”.

However, unlike the traditional IT services market in which 200,000 thousand engineers can be a decisive competitive advantage, the newer services require fewer, but more talented, employees.

This has in a sense ‘levelled’ the playground for Indian companies versus their competitors from other countries such as the US and Israel, raising doubts about Indian companies’ ability to maintain their 50% or so market share in the global IT services market.

Pathak, however, seemed confident of Indian companies’ abilities to successfully carve out a big share of the new market, and pointed out that Infosys is already a substantial player in the new IT services market.

He said the company is already getting about $2.8 bln revenue from agile digital out of the total $160-200 bln global market.

“This is a market we want to be in.. It’s already growing multiple times as fast as the rest of the company,” he said.

The company sees the new IT market as five broad segments, with each centered around analytics, content and marketing, cloud and infrastructure, security, and product engineering.

Pathak said there are no big, dominant players in any of these segments as of now, leaving the field open for growth.

“Our aim is to build one-, two-, three-billion dollar businesses (in each of these markets) in the coming years and become leaders in those businesses,” he said, speaking at Morgan Stanley’s Twentieth Annual India Summit in Mumbai today.

POLITICAL CHALLENGES

Pathak also addressed the issues of employment and political pressures felt by the company in its markets such as the US.

In the US, President Donald Trump has made it more and more difficult for companies to source staff from cheaper locations like India to replace higher-paid, local workers in the US.

Pathak said the ‘dynamics’ of the industry has changed across the world and the business has to change according to the new reality.

“The overall sentiment (in many of our markets) is to enhance more local job opportunities,” he said.

“The dynamics, globally, is different and the business model needs to evolve in that direction… Our effort is to to ensure that our business model evolves in the right way without sacrificing the best aspects of our business model,” he added.

He said Infosys has set up a 50-acre training campus in Indiana in the US and is setting up four more centers.

It has also identified locations in Europe and Australia for setting up such local hubs.

These hubs would have hundreds of people recruited locally, stretching from fresh graduates  to senior project managers, he added.

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