How long can Indian profit margins defy gravity?Steve Hamm
Infosys reported another huge quarter this morning. Revenues of $746 million were up 42.4% and net income was up 43.4%. The company's growth rates are remarkable, but even more striking is the fact that it keeps improving operating margins. They improved by 2% to 28.3% last quarter. CEO Nandan Nilekani attributes this to a combination of lower visa expenses, the effect of currency shifts, and increased efficiencies. And get this: The company became more efficient even while it hired 10,795 employees in the quarter. Western observers keep predicting that the Indians won't be able to sustain those amazingly high margins, but they keep doing it. And the fact that they keep doing it proves that labor arbitrage is no longer the primary source of their success: It's about executing on a superior business model day after day.
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