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Rediff.com  » Business » Infosys needs to focus on India for long term growth

Infosys needs to focus on India for long term growth

April 06, 2015 13:46 IST

India accounted for less than three per cent of Infosys's revenue in the last financial year whereas Tata Consultancy Services, the industry leader, clocked India sales of twice that level at under seven per cent. 

In a change of long-term strategy, Infosys has unveiled an active programme of growth through acquisition, something it was shy of in its more conservative past. 

Infosys made an acquisition as far back as in 2003 of an Australian entity for $23 million. Thereafter, its acquisition tickets had not crossed the two-digit mark till 2011. It is only since 2012 that the software leader has made acquisitions worth over $200 million.

The important point about its current strategy is that it will acquire not just niche companies, which bring specific capabilities and technologies like consulting or digital prowess but also business volumes in geographies and verticals with scope for rapid growth.

It is, therefore, not surprising that a brokerage has projected a doubling of its revenue growth rate from the current seven-nine per cent in dollar terms to 15 per cent in two years to 2016-17.

The firming up of an active acquisitions agenda is the result of not just the recent change in the leadership of the company with the coming in of Vishal Sikka at the top but also increased shareholder clamour for higher payout.

Two former chief financial officers of the company have recently proposed a share buyback to bring down the Rs 30,000-crore (Rs 300 billion) cash pile that the company is sitting on and improve shareholder value.

The acquisition route is necessary for two reasons. Like all large technology firms, it is high time Infosys launched a programme for securing access to new technology through regular buyout of start-ups in order to strengthen itself.

Besides, with the developed economies in a secular slowdown mode, there will be no scope for relying on demand from them for rapid growth at anywhere near earlier levels. So it is growth through acquisitions that will matter more henceforth.

But what is most needed to ensure truly long-term growth is looking more carefully at the Indian market. India accounted for less than three per cent of Infosys's revenue in the last financial year whereas Tata Consultancy Services, the industry leader, clocked India sales of twice that level at under seven per cent.

Since China and India will over time emerge as the main engines of growth in global demand, Indian information technology leaders cannot simply go on remaining wholly focused on the developed economy markets. 

The domestic economy accounts for a majority of the revenue of China's software sector. The problems of doing business in India are well known and not peculiar to the software industry, but given India's low information technology penetration, be it in the use of credit cards or access to the internet, the market needs to be developed.

Nandan Nilekani, former Infosys chief, played a major role in taking the use of information technology in India forward by being able to sell the idea of biometric identification to leaders across the political spectrum.

The present leaders of the cash-rich Indian information technology companies may have to tell their shareholders to be ready for lower earnings growth as the firms promote the growth of information technology in a market that is still far from entirely literate, quite poor and not well connected.

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