India 3.0

Bangalore wants to move beyond simple code. Good idea--or self-delusion?

These days when Vivek Paul heads to work, he often wears a blue denim shirt with the letters "FF" stitched to the pocket. The letters stand for Fast Forward. And they neatly sum up Paul's ambitions for Wipro Technologies, a Bangalore-based company that over the last half-century has transformed itself from a vegetable and edible-oils trader into India's largest listed software services company. Today, Wipro routinely wins multimillion-dollar contracts from the likes of General Electric, Home Depot, and Nokia and this year is expected to rack up $392 million in revenues.

Now, Paul is thinking bigger. Much bigger. His goal: to change Wipro from a provider of unglamorous, back-office code-writing into a $4 billion multinational that offers end-to-end software solutions. The idea is to take on IBM Global Consulting, Accenture, and Electronic Data Service, the leviathans of the industry. "We want to be a tech powerhouse," says Paul, a former GE executive who has been Wipro vice-chairman and president since July of 1999. By 2004, Paul wants Wipro to rank among the top 10 IT service companies on the planet. Even he concedes that "it's a completely audacious goal."

That it is. But Paul is not some lonely maverick. No longer content to dominate the relatively anonymous but low-risk business of writing code on contract, other leading Indian companies such as Infosys Technologies, Tata Consultancy Services (TCS), and Satayam Computer are also pushing upstream into more lucrative full-service consulting. Not only that, restless young Indians are leaving secure jobs at Indian companies to create original software for Western markets.

Scaling the value chain is a matter of survival. While the likes of Wipro and Infosys continue to report triple-digit profit increases, they are facing increasing competition from rivals in other Asian nations. Countries from China to the Philippines to Vietnam also have low-salary software engineers, are modernizing their telecommunications, and hope to develop outsourcing industries. For Western companies looking for cheap labor, India is looking less attractive. While a Bangalore programmer earns just $800 a month, salaries are rising 15% a year. "The only people who think Indian engineers are cheap are Indians," says Sameer Kochhar, managing director of Skoch Consultancy Services, a New Delhi-based adviser to Gateway Computer Inc. and others.

SQUEEZE. At the same time, such Western consulting firms as PricewaterhouseCoopers (PWC) and Accenture, formerly Andersen Consulting, are entering the low-margin coding business as a way to offer more comprehensive services to their clients. In the past two years, both companies have opened Asian software centers, in Calcutta and Manila, respectively. The Indians, says Ravi Trivedy, head of IT strategy for PWC in India, "are getting squeezed on all sides." So before the vise tightens, Bangalore's best are attempting to break out beyond their core services business. Says Infosys Chairman and CEO N.R. Narayana Murthy: "We have to move rapidly."

They have a long way to go. Indian software companies now undertake a range of jobs, from helping Western clients integrate old mainframe-based systems into new e-commerce platforms to setting up supply-chain management systems, to helping clients spot trends in data collected about their customers. Indian programmers have carved themselves an enviable reputation. Tales of their prowess abound. In January, Sycamore Networks, a Chelmsford (Mass.) optical networking outfit, needed to crack some algorithmic codes fast. It turned to Tejas Networks, a Bangalore maker of optical networking equipment in which Sycamore has a stake. Sycamore gave Tejas' six designers two days. They did it in eight hours.

Yet much of the new work is project-based. What Indian companies now want are wider-ranging long-term contracts that encompass a client's entire IT needs. This means consulting on IT strategy as well as designing and implementing it. For the likes of Wipro and Infosys, the ultimate money-spinner is what the industry calls "business process consulting." That involves advising clients how to adjust their management and work flow to mesh effectively with their technical systems.

The Western giants already provide a plethora of such services to a roster of blue-chip clients. To catch up, the Indians must bring in outside marketing, management, and top-drawer consulting expertise. Doing so means Bangalore's executives will have to transform their insular companies into true multinationals. That perhaps is the biggest challenge--learning to run a far-flung enterprise that includes everyone from Indian engineers to American marketers to Vietnamese code-jockeys. PWC's Trivedy reckons "all that stuff is out of their reach."

Perhaps, but U.S. and European firms are according the Indians growing respect. Cloy Swartzendruber, director of application development at the Portland (Ore.) utility PacifiCorp, says his company even learned a thing or two from Wipro after hiring the Indian firm to implement management and customer-relations systems. If the leading IT companies of Bangalore and Bombay can transform themselves into all-round IT-solutions providers, they might become lower-cost threats to IBM, PWC, and Sapient. Moreover, with corporate layoffs again the fashion in the U.S., a more powerful Indian software industry could become a growing threat to American white-collar workers--or even a new source of employment.

Already, companies such as Wipro and Infosys are plotting strategy. For his part, Wipro's Paul divides the process into three steps. Step one is building what he calls industry "verticals"--groups that combine the talents of engineers and business process consultants. Wipro now has 1,200 staff specializing in finance and insurance. But so far it has hired only 60 or so business process consultants, most of them in India. Step two is recruiting such people. Paul figures Wipro needs to add 30,000 employees over the next three years.

Step three: the acquisitions required to grow into a globally competitive enterprise. Both Infosys and Wipro have an eye on U.S. e-commerce consulting firms but neither has moved because, despite falling markets, these companies remain expensive. Paul is patient but knows he can't wait forever. "With acquisitions we can move faster," he says. "To do it organically will take time."

Apart from bulking up, India's IT companies need to convince clients they can do the big jobs as well as the competition. In many cases, multinationals that hire Indian firms to handle low-end work are sufficiently satisfied with the price, speed, and quality of the service that they ask them back for more sophisticated jobs. One such company is Britain's Thomas Cook Financial Services. After selecting Wipro to set up a system automating Thomas Cook's foreign currency purchases, it hired the Indian company to put the system online. "Wipro's values of honesty and integrity are excellent and come from the top," says Thomas Cook's chief information officer, Neil Harrison. "It'll be a force in two years."

While Indian companies continue to chase big multinationals, they also are targeting midsize businesses. One is, a new online community for Japanese housewives that provides everything from shopping to banking. EveryD paid Infosys $9 million to set it all up--from devising the business plan to designing the portal to writing the software it runs on. EveryD's chief financial officer, Shibata Iwao, says though Infosys wasn't the cheapest, it had expertise in e-banking and e-tailing at the front and back ends of the business. "Infosys' expertise in a variety of areas and technology is deep," says Iwao. "And they deliver on time."

MOVING ABROAD. An early American customer was, an affiliate of the $3 billion Kansas-based trucking company Yellow Corp. hired Infosys in 1998 to write logistics management software. Since then it has given Infosys several jobs.'s chief technology officer, Dan Bentzinger, says he prefers working with Infosys over the big U.S. firms because it helped discover what its customers wanted and designed the software accordingly. Bentzinger adds that where the biggies are adept at strategizing and schmoozing the CEO, Infosys is better at implementing ideas. "I am kind of wondering how Accenture and IBM will compete with them," he says.

To get close to customers, Indian executives are shifting overseas. One is Rajesh Hukku, the 42-year-old chairman of Bombay-based i-Flex Solutions, a financial-services software maker. In 1997, Hukku moved to Parsippany, N.J. He regularly goes on sales calls, seals deals, and pushes his product at industry forums. To bring a more global complexion to the company, Hukku has been hiring managers from London to Buenos Aires, and has posted about a quarter of his 1,450 employees to four continents. "We want to transform ourselves from an Indian company that exports to the world," says Hukku, "into a global company that manufactures in India."

A year ago, when Pradeep Singh formed Talisma Corp., a customer-relations-management software maker, he decided to headquarter it in Seattle, where he could get U.S. salespeople to push his made-in-India product. The global approach seems to be working. Talisma has 19 offices in 7 countries serving such clients as GE, Citibank, and EMI Records. The latter purchased Talisma software that lets the London-based company communicate with its artists' fans, and thereby boost its customer database. "We like its sophistication and simplicity," says Fergal Gara, EMI's director of new media. "We think it's going to give us a good payback."

India's IT executives know they can't keep adding revenue by hiring workers. "If we stay fixed at the things we're doing, we'll become out-priced," warns Kesav V. Nori, chief information officer for TCS, which now has 14,000 IT employees. So TCS is looking for new ways to grow. One is to move overseas; Nori hopes to open offices and development centers in Hungary, Vietnam, and China.

SELLING BLOCKS. That won't help TCS move up the value chain, though. To do that, it is starting to take control of its software. Instead of writing it for a client and then handing the whole thing over, TCS retains what Nori calls "software components," or blocks it can sell to other customers. For example, after TCS developed a custodial-services program for Standard Chartered Bank's Singapore branch, the two companies split ownership of the software and are selling it to other banks.

Taking blocks of code that it develops for one client and assembling them, Lego-like, for others certainly sounds appealing to Wipro's Paul. But he knows selling software components can backfire if customers suspect that he is taking programs that he develops for them and selling the same code to their rivals. "For companies that we work with," he says, "the last thing they want is to be creating a competitor."

Paul has good reason to worry. Just ask Mohan Kumar, general manager of Motorola Inc.'s Asia-Pacific global software and solutions group in Bangalore. Kumar doesn't want to do business with any software services company that might take programs developed for him and then sell it to someone else. "We'll be concerned," he says, "if we give work to someone and they give it to Samsung," a direct competitor. In fact, if Kumar suspects such a thing is going to happen, he'll take his business elsewhere.

To succeed in their breakout bid, the Indians will also have to overcome the conservative culture at many big IT companies. The price of entering the product business is enormous, requiring them to be willing to live with losing money in the short term. "That's anathema to Indian investors," says the managing director for a major Western securities house in Bombay. "They hate spending money." Moreover, companies that aspire to enter the high-end consulting business will need to part with cash to acquire U.S. or European companies--another challenge for cautious Indian managers. "They study an acquisition to death," the analyst says.

But Indians increasingly realize they must change. Aware of the pain that mighty companies like Daimler have encountered when trying to take over American companies, Wipro's Paul says that he's been reluctant to take the plunge. But he knows he must. "We're not going to be a $4 billion company just doing the work we're doing today," he says. So he's preparing to start making deals. "Luck favors the brave," he declares. As India's software companies try to climb the world's IT ladder, they'll need all the bravery they can muster.

By Bruce Einhorn and Manjeet Kripalani in Bangalore, with Pete Engardio in New York

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