IBM: Star of India

From inking deals to hiring top workers, Big Blue is beating its tech services rivals

Just a few years ago, IBM (IBM) looked stodgy compared with agile Indian tech players such as Infosys, Wipro, and Tata Consultancy Services. But today, Big Blue has become the leader in the Indian tech services industry, with 10% of the domestic market. Its Indian workforce has more than doubled in two years, to 53,000—about 15% of its worldwide total—and Bangalore and New Delhi are now home to IBM's largest research and development labs outside of the U.S.

Since inking a $750 million, 10-year agreement with leading cellular carrier Bharti Airtel Ltd. in 2004, IBM has been racking up deals in India faster than any of its local competitors. In the first half of 2007 alone, it signed some $1.4 billion in long-term contracts. Says Bharti's innovation director, Jay Menon, a former IBMer who now sits on Big Blue's advisory board: "India is the jewel in IBM's global crown."

Indeed, the company is so well entrenched in the subcontinent that in 2006, Chief Executive Samuel J. Palmisano was voted "IT leader of the year" by Nasscom, India's software industry association. And local heavyweights view IBM as a formidable competitor, as it has signed up a roster of blue-chip clients such as real estate developer DLF, state-run Canara Bank, and the Indian tax department. "IBM has really understood what India is all about," says Nasscom President Kiran Karnik.

At the same time, the company has worked hard to integrate India into its worldwide operations. That has allowed IBM to eliminate 20,000 jobs in high-cost markets such as the U.S., Europe, and Japan. The success of this strategy was confirmed this summer when IBM reported second-quarter revenues were up 9%, to $23.8 billion—powered in part by a 10% increase at its IT services group, which suffered mightily at the hands of its Indian rivals in the early part of this decade.

IBM hasn't been shy about plowing big bucks into India. Instead of creating a tech services operation from scratch there, which could have taken years, itsnapped up call-center operator Daksh for $150 million in 2004; the outfit now handles back-office operations for the likes of Sprint and Dun & Bradstreet. Since then, IBM has spent another $2 billion in India building new facilities and hiring thousands.

Research is also a big part of the equation. IBM has set up R&D centers staffed by 3,000 engineers in India, which have become a source of innovation on everything from software to semiconductors to supercomputers. One team, for instance, developed a Web-based program that analyzes a person's accent, grammar, and vocabulary, which is used to evaluate applicants for jobs at IBM's call center operations, and the company says it could be deployed more widely to test language fluency.

IBM's rapid expansion in India has turned up the heat in the competition for skilled workers. Big Blue added some 10,000 employees to its India payroll last year—compared with 25,000 for all of the Indian players combined. In Pune, a rapidly developing IT center near Mumbai, the company has been dispatching vans with signs saying "IBM is hiring" to the gates of rivals at lunch time. "Their hit rate is pretty good," laments a manager at a tech firm that has lost employees to IBM.

The company's success is spurring Indian rivals to look for more opportunities in their own backyard after years of focusing on customers overseas. Infosys, for instance, says it will now start bidding for Indian deals, something it hasn't done in the past. "IBM has created a market. Now they will find they will have to share," says Gaurav Gupta, who heads the India business at Everest Group, a tech advisory firm in Bangalore. The folks at IBM are unfazed. "Competition is welcome," says Shanker Annaswamy, IBM's India chief. "No one has the depth we do."

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