Source: The Economic Times 

KV Kamath has offered reassurance that Infosys, which has appeared somewhat unsettled in recent months, will embrace change wholeheartedly while preserving the ethos of the company’s founder, NR Narayana Murthy.

Kamath, a towering personality himself in the banking industry, suggested a new openness to acquisitions, re-orientation of strategy and radical innovations for productivity increases.

“We understand what the challenges are and our response is ready,” he told ET in an interview on his first day as the new chairman of India’s second-largest software exporter. He succeeds Murthy, who held the job for more than 30 years, building Infosys into a respected global brand with annual sales of $6 billion (Rs 27,000 crore).

“If I look at Infosys, it has been a company that for a long time adapted to markets. I’m very clear that the adaptation to the market which is just now being called for will be done,” Kamath, 63, said. In the past few months, Infosys, which has for long set the standard for performance in the IT industry, has given the impression of being wobbly.

Many of its top executives, including Mohandas Pai, Subhash Dhar and K Dinesh, have resigned. Rivals-market leader Tata Consultancy Services and fourth-placed Cognizant, have grown sales faster while improving margins in tough market conditions. And there have been murmurs that Infosys has been very reluctant to make better use of its cash pile of $4 billion to buy itself competitive advantage.

Kamath, who transformed ICICI from a moribund industrial lender into India’s largest private bank, gave ample indication that an acquisition in the near future is a distinct possibility.

“You cannot buy just for the sake of buying. However, if there is a good opportunity, Infosys continues to look at all verticals. I would think, given the current situation, that could have more focus. Certainly, the changes that are happening will throw more on your table. There could be very interesting options as we go along.”

A mechanical engineer who acquired a business management degree from IIM-Ahmedabad, Kamath began his career at ICICI in 1971 and worked there for 17 years before joining the Asian Development Bank. He returned to ICICI in 1996 as its managing director and CEO, crafting a strategy that resulted in it becoming a pioneer in technology adoption and a powerhouse in retail lending.

While there is no easy alternative to India as an offshore outsourcing destination, for Infosys and the rest of the industry, the immediate challenge will be the pressure they face from customers for better rates, putting pressure on margins. This pressure, he said, can be mitigated by productivity increases and innovation.

Source: The Times of India

CHENNAI — Cognizant announced that its revenue rose 34.4% to $1.49 billion in the quarter ended June, and in the process displaced Wipro Technologies as India’s No. 3 IT firm in terms of revenue. Wipro reported a revenue of $1.41 billion in the quarter.

Cognizant said it is expecting a revenue of $1.57 billion in the September quarter. Wipro’s guidance for the quarter lies in the range of $1.39-1 .42 billion. Cognizant has also narrowed the revenue gap with Infosys to less than $200 million. Infosys earned $1.671 billion in June quarter, and its guidance is $1.73 billion for September quarter.

Cognizant’s net profit jumped 20.83% to $208.04 million in the April-June 2011 quarter, up from $172.17 million in the year-ago period.

The NASDAQ-listed firm, which has more than 70% of its software developers in India, has also been aggressive on the recruitment front. In the June quarter, Cognizant net added 7,200 professionals as against Wipro’s 2,894 and Infosys’ 3,041. Only TCS recruited more, with a net addition of 11,700 people in the quarter.

Cognizant ended the quarter with over 1,18,300 employees globally. The company added 76 new clients and closed the quarter with 721 active clients.

Geographic composition of revenues shows Cognizant earned 77.8% from North America, 18.6% from Europe and 3.6% from Asia Pacific, West Asia and Latin America.

Analysts had expected profit earnings of 66 cents a share, on revenue of $1.46 billion. The company reported profit earnings of 67 cents a share on revenues of $1.49 billion.

“We believe that our ability to attract the world’s best talent and our unique global delivery model infused with deep consulting and domain expertise are among the reasons why we see continued demand for our services that deliver both topline and bottomline value to our clients, and continued industry-leading growth for Cognizant,” president and CEO Francisco D’Souza said.

The company forecast a strong third quarter (July-September ) at a time when rival Indian IT services exporters have warned of slowing technology spending. Infosys reported quarterly profit that missed expectations and warned it could face slow client spending. TCS flagged concerns about economic uncertainty, and Wipro said the uncertain economic environment had resulted in volatility in business, but it was not seeing delays in the IT spending decision-making process by customers.

Cognizant has projected third-quarter earnings of at least 76 cents a share, on revenue of at least $1.57 billion. Cognizant has also revised the guidance upwards to at least 32% for the full calendar year 2011 (from at least 29% announced last quarter and at least 26% at the start of the year).

“We continue to see stronger than anticipated demand for our increasing range of services across the industries we serve. Over this past year, we have seen clients seeking our services not just to drive operational efficiencies, but also to transform their businesses to adapt to next generation technologies and to a new generation of ‘born digital’ workers and consumers,” D’Souza said.

Sekaran of Cognizant is looking to buy to expand

Global delivery head forecasts acquisitions, expansion in LatAm

By Kirk Laughlin

The days of cost arbitrage in the global outsourcing market are numbered, according to Chandra Sekaran, president and managing director of Global Delivery for Cognizant. For global BPO/ITO players to thrive they will need to accelerate their ability to offer “intellectual arbitrage,” where value to the client will be built around domain-level expertise.

So how will Cognizant, with its relatively small presence in Latin America, climb higher on the smartness meter and differentiate itself from rivals? Sekaran explains below.

When Nearshore Americas checked in with Sekaran a few weeks ago, he made it very clear that growing through acquisition is a high priority for Cognizant. Recently rumored as a potential acquirer of Genpact, Sekaran said New Jersey-based Cognizant “continuously looks for acquisitions” particularly for services firms in the $20 million to $200 million range. “For us, $80 million would be the right acquisition,” he says. Key benefits from gobbling another company would include “helping us with skill we don’t have” and expanding the firm’s customer base.

Specialization in specific tasks and mastery in certain vertical industries are big operating mantras at Cognizant. “We need people who understand the customers’ pain points and business requirements…we hire the maximum number of domain experts who have the right tech skills and business knowledge.”

Life sciences, financial and consumer goods sectors represent Cognizant’s main regional clients out of its Argentina-based center, which employs about 200 people. Kimberly-Clark, one of the firm’s largest consumer goods clients, was the firm’s anchor partner in decision to open the delivery center in early 2008.

Its Mexico facility employs about 100 individuals and is solely focused on financial services customer delivery. Cognizant does not seem content, however, with just two delivery centers in all of Latin America. “We are looking actively at other geographies,” he says. “LatAm for us is very strategic.”

Cognizant, which competes with such firms as Wipro, Infosys and Tata Consultancy, has clearly taken a lower profile in Latin America. Like many firms before it, the company must navigate new terrain, build relationships with new partners and determine how to best utilize delivery centers which are commonly aligned with 75% of its global business – generated from the U.S.

Not surprisingly, Cognizant’s focus on strengthening its LatAm footprint fits into a larger philosophy designed to stimulate a robust, worldwide delivery architecture so the firm is “local to the customer.”

“For us to provide that local flavor, we need to have global capabilities.” Cognizant has 50 delivery centers in 14 countries.

Commenting on the debate around whether the US truly lacks a sufficient labor pool in science and technology fields, Sekaran says: “ If you really look at – there is a definitely a shortage of tech talent.”

The company last year joined on as a support of “Change the Equation/ STEM”, a private and public cooperative effort to improve performance and engage more U.S. students in science and math.

Source: WSJ

Tata Consultancy Services, Infosys Technologies and Wipro may be the best-known Indian software services companies, but a much smaller U.S. firm has raced ahead of the Big Three in financial performance.

Cognizant Technology Solutions (with Latin American facility in Argentina), which was spun off from credit-information provider Dun & Bradstreet Corp. in 1996, is headquartered in Teaneck, N.J., and listed on the Nasdaq, but most of its operations and three-quarters of its work force are in India.

On Tuesday, it said its revenue rose 6.3% to $960 million for the quarter ended in March, compared with the prior quarter. It forecast a $55 million increase for the current quarter ending June 30.

The growth forecast is aggressive even when compared with bellwether Infosys, which expects a $34 million to $44 million revenue increase in the current quarter.

Cognizant added 52 clients and expanded its staff by 7,100 employees last quarter, indicating the strength of the deals it has in the pipeline. The employee addition is next only to India’s top tech outsourcer, Tata, which added 10,775 staff in net terms during the same period.

Cognizant’s U.S. base and investments in sales personnel helped it pick up on customer signals better than its competitors, analysts said.

Last fiscal year, when India’s software exporters complained about a “difficult environment” that weighed on sales, Cognizant managed to outperform the top boys. While Infosys revenue increased by $141 million last fiscal year, Cognizant posted a $574 million increase.

On this front, Cognizant left India’s other two big IT firms in the dust — TCS’s new revenue last fiscal year was $324 million, while Wipro added $67 million.

While Infosys added 141 clients last fiscal year, Cognizant bagged 201. It also increased its share of the world IT services market to 0.4% in 2009 from 0.3% last year, while India’s top three barely managed to maintain their territory, according to research firm Gartner Inc.

Melanie Carter-Maguire and Robert Hoffman are regulars at Capitol Hill, rubbing shoulders with lawmakers to try and influence events at the centre of US power. But the two lobbyists have perhaps their toughest assignments yet, as they brace to drum up support for their companies on immigration and outsourcing, high-strung issues in the US after the Great Recession.

Ms Maguire, who was hired by India’s third-largest software exporter Wipro last week, and Mr Hoffman, who joined as first vice-president of global public policy last year at Cognizant, another top IT company, have been entrusted with pushing their companies’ cases in a key market where the public outcry against outsourcing is getting shriller by the day.

India’s $60-billion technology services industry, which has had a largely uninterrupted run in its key market, has recognised that political lobbying is the need of the hour to educate local lawmakers about the economic benefits of outsourcing, after ballooning unemployment has exacerbated the cry against foreign tech companies. The task has been made more difficult by the US jobless rate galloping to double digits. US policymakers are under pressure to tighten immigration norms for protecting local jobs in software programming, call centres and legal paperwork.

“For global companies like Cognizant, there is a simple truth: government matters. Whether it’s in New Delhi, Washington, Beijing or Brussels, decisions made by legislators and regulators have a direct bearing on a company’s ability to compete and grow, and provide a unique experience to its customers,” Mr Hoffman said in an interview.

A Wipro spokeswoman was yet to respond to an ET query at the time of going to press. However, at least three people confirmed to ET that Wipro has hired Ms Maguire to lead local lobbying and public policy efforts in the US.

The US, along with Europe, accounts for about 80% of Indian software exports and Indian companies are keen to avoid any disruption to their fragile recovery.

Indeed, companies such as Wipro that earlier preferred industry lobby National Association of Software Services Companies (Nasscom) to do lobbying for them are now single-handedly toying with the practice. By getting public policy experts on their payroll, these companies are attempting to portray sensitive issues in a high-stakes market in a kinder light.

Indian tech firms realise that such efforts will help them break into the largely untapped US healthcare market worth over $20 billion. Reforms in corporate tax, visa and patents to oil their business practices are also on the agenda of the lobbying muscle employed by these companies.

Besides Wipro, companies such as Patni and TCS are learnt to have engaged different lobbying firms for their time-bound and specific needs, though Nasscom continues to lobby on behalf of the industry. Barbour Griffith & Rogers (BGR), The Cohen Group and Hill & Knowlton are among the top lobbying firms roped in by the likes of TCS, HCL and Patni Computer Systems to reach out to lawmakers.

For instance, Patni paid around $70,000 in 2008 to BGR towards immigration-related work, according to the Lobbying Disclosure Act database. The lobbyist involved was Roberts Walker who, as per the filing made with the database, provided strategic counsel, tactical planning and advocacy with respect to implementation of immigration and visa policies.

Nasscom declined to provide its annual lobbying spend, but according to estimates available with lobbying experts in the US and India, it spent nearly $2.7 million in 2008 and another $1.6 million by last October. ET could not independently verify these figures.

“The stakes are too high now. We need people who can engage with lawmakers and present our views,” said a senior executive at an Indian tech firm that has hired a lobbyist, adding that Indian companies need to be seen as global, proactively participating in the local thought leadership.

Clearly, Indian companies believe that some sophisticated lobbying efforts can break the myth surrounding job losses due to tech offshoring.

“This is signalling the kind of importance the industry gives to such issues as we become more globalised,” Som Mittal, president of Nasscom told ET in a recent interview. “It’s not about influencing opinion but more about ensuring that our perspectives are known,” he added.

In times of economic uncertainty and rising unemployment, the impulse for many policymakers is to build barriers, particularly against foreign trade, investment and migration.

“Efforts like these tend to have global ramifications, including driving both skilled workers and capital investment to countries with fewer barriers and more inviting economic development policies,” Mr Hoffman said. “In such a situation, policymakers have a critical role to play — use compelling evidence and urge refraining from protectionist measures in the long-term interest of their countries. Sometimes, it can be a hard sell,” he said.

US President Barack Obama and his Democratic Party had made outsourcing an election issue, and have repeatedly brought it up since he got elected. The widespread belief is that a direct attack on outsourcing from the White House is on its way. And Indian outsourcing giants, rather than wait and watch, are taking up the issue with lobbyists.

Experts such as Rodney Nelsestuen, senior research director of TowerGroup in the US, said companies are realising that a longer Democrat rule would need intense lobbying.

The value of lobbying experts may diminish, if the US balance of power between Democrats and Republicans equalises in 2010 and there is a return to high levels of stalemate on every issue. “Still, there is likely to be some type of healthcare reform and outsourcing companies would do well to be on the inside of change given that one way to get more business will be to lead in the compliance and knowledge area of any new developments,” Mr Nelsestuen said.

Added Mr Hoffman: “To put it starkly but truthfully, when it comes to public policy, if you’re not at the table, chances are that you are on the menu.”

Coinciding with a turnaround in business sentiments in its largest market, top-tier IT companies such as Infosys, Wipro and HCL Technologies appear to be aggressively ramping up North America-based delivery capabilities.

While Infosys Technologies has bought McCamish Systems based in Atlanta, Georgia, HCL Technologies has completed the acquisition and upgradation of a data centre in Parsippany, New Jersey. In the last four months, Cognizant has announced the expansion of two of its delivery centres in Phoenix (Arizona) and more recently in Toronto, Canada.

Market watchers are of the opinion that industry seems to be carrying on from where it left-off when global financial crisis put a spanner on client IT spends.

“The slowdown hit demand visibility, as customers held back purchase decisions or pruned their budgets. During that period, we saw IT services companies focus on internal costs and efficiencies. But now that the bad news has subsided, the IT industry is hopeful that the demand recovery will happen,” Mr Nishant Verma, Vice-President at Tholons Capital, said.

At present, North America accounts for nearly 60 per cent of India’s IT export basket. Even as clients are in the midst of finalising their tech budgets for next year, reports from research and consultancy firms point to a revival either in the current quarter or in 2010.

Revival soon

Forrester recently predicted that the US tech market will start to recover from downturn in the fourth quarter of 2009, and that the global tech market will follow suit next year.

“Strategic business applications tend to be an important driver for expansion near client sites. IT companies are increasingly finding that for a part of their work including new application development or brand new business lines, clients want near-shore alternatives,” says Mr John McCarthy, Vice-President and Principal Analyst at Forrester.

Also, a lot of work around software packages needs to be done in close proximity to businesses as it involves business process re-engineering. “These are specialised activities that cannot be done over VoIP networks, 9.5 hours away from customer site,” Mr McCarthy said.

HCL Technologies’ New Jersey centre enables delivery of data centre services, including near-shore co-location solutions, business continuity planning, cloud computing and mainframe management.

Infosys BPO hopes to enhance its capability to deliver end-to-end business solutions for the insurance and financial service industries through McCamish Systems.

For Cognizant, the operational expansion of Phoenix delivery centre was primarily to add BPO services to the existing roster of application development, application maintenance, testing and related services. It will hire over 100 full-time professionals at the Phoenix delivery centre over 12 months and take the overall headcount at that centre to over 400, the company said.

Press Release (Dec. 3 /PRNewswire):

Cognizant (Nasdaq: CTSH), a leading provider of consulting, technology, and business process outsourcing (BPO) services, has announced the opening of an expanded delivery center in Toronto. The delivery center will continue to serve a growing roster of U.S. and Canadian clients, as well as the Canadian subsidiaries of global clients that seek the resource flexibility and time zone advantages of near-shoring.

“Since opening our first Toronto office in 2004, we have steadily grown our presence and investment in the Canadian market, serving clients in banking and financial services, insurance, life sciences, retail, and other sectors,” said Chandra Sekaran, President and Managing Director, Global Delivery, Cognizant. “With the support of an outstanding university system and local talent pool, our Toronto center will continue to attract IT and business professionals with deep domain expertise.”

“Cognizant is one of the world’s fastest growing companies, and we welcome Cognizant’s decision to increase its investment in Toronto and grow its local workforce. We believe Toronto is becoming the go-to location for innovative, globally minded companies, and we look forward to working with Cognizant as we expand business and employment opportunities for a knowledge-based economy,” said Michael H. Williams, General Manager of the City of Toronto’s Office of Economic Development, Culture and Tourism, speaking on the occasion of a ribbon-cutting ceremony at the new offices on December 2.

“As one of Cognizant’s 53 IT delivery centers worldwide, the Toronto center will offer clients a robust near-shoring option encompassing consulting, IT infrastructure, testing, application development, application maintenance, and other services,” said Bala Loganathan, Center Head for the Canada Delivery Center.

About Cognizant

Cognizant (Nasdaq: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services. Cognizant’s single-minded passion is to dedicate our global technology and innovation know-how, our industry expertise and worldwide resources to working together with clients to make their businesses stronger. With more than 50 global delivery centers and over 68,000 employees as of September 30, 2009, we combine a unique onsite/offshore delivery model infused by a distinct culture of customer satisfaction. A member of the NASDAQ-100 Index and S&P 500 Index, Cognizant is a Forbes Global 2000 company and a member of the Fortune 1000 and is ranked among the top information technology companies in BusinessWeek’s Hot Growth and Top 50 Performers listings. Visit us online at www.cognizant.com.

Forward-Looking Statements

This press release includes statements which may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the accuracy of which are necessarily subject to risks, uncertainties, and assumptions as to future events that may not prove to be accurate. Factors that could cause actual results to differ materially from those expressed or implied include general economic conditions and the factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission. Cognizant undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

SOURCE: BNAMERICAS

US IT services firm Cognizant (Nasdaq: CTSH) expects Latin America to represent 3-5% of global sales within the next three years, the company’s country manager for Argentina, Cristián Argüello, told BNamericas.

Latin America currently represents less than 1% of the firm’s global sales, which hit US$2.82bn in 2008. Cognizant expects global revenues to reach US$3.1bn this year.

Within Latin America, Cognizant has a development center in Argentina, which serves 15 global clients in industries such as insurance and pharmaceuticals. Cognizant focuses on providing those firms with business application support and maintenance.

Argüello said the company has started work on a new development center in Brazil and an office expansion plan in Mexico to help capture IT outsourcing business opportunities.

“We have an expansion and business development plan for the region,” he said. “The center in Brazil will focus on developing the domestic market. It will not affect development at the center in Argentina, which will have multiple foci while serving global accounts.”

“The situation in Mexico will be a mix. In some cases for specific services like BPO, services will be offered from Mexico. The office will also serve the local market,” he added.

The executive was unable to disclose investment figures.

SHARED SERVICES CENTERS

Shared service centers have taken center stage in Cognizant’s Latin America strategy, Argüello said.

“What we are seeing is that many multinational companies with presence in the region are following a trend of optimizing their costs through the construction of regional shared service centers,” he said. “At the same time, there is a trend towards seeking a strategic partner, such as Cognizant, to help them develop those centers.”

Other top business opportunities include IT services for financial, pharmaceutical and retail companies in Mexico, Brazil, Argentina and Chile.

Globally, Cognizant has 50 delivery centers that serve 560 clients, including 46 of the Fortune 100 companies. The company has over 64,000 employees worldwide.

SOURCE: GLG

Cognizant acquired UBS’ Indian Subsidiary for $75 million – the former supports UBS around the globe with Knowledge Process Outsourcing (KPO), Business Process Outsourcing (BPO) and IT Outsourcing (ITO) and employs 2,000 people in India.

As part of the deal, UBS signed a 5 year $442 million service agreement with Cognizant.
This “Captive Spin-Off” Approach is tried and true approach in outsourcing and a large number of similar transactions are currently in progress around the world.
Analysis

Spinning of a client owned share service center (a “Captive SSC”) is a classic model for growing a BPO business. Most of today’s leading BPO providers used this technique at one time or another in their growth models. Some similar transaction in the past include:

1. Warburg Pincus creating WNS (NASDAQ: WNS) by spinning off British Airway’s SSC in India (“WNS actually stands for “World Network Services” which was the name of the BA Unit);

2. eXL Services creation with Conseco Insurance’s back office in India,

3. General Atlantic and Oak Hill Partners creating Genpact (NYSE: G) with by spinning off GE’s captive units around the world (most notably India and China);

4. OneResource Group (later purchased by Capgemini) spinning off Dairy Farm International Holdings operation in China,

5. Savista (later acquired by Accenture) with Yum! Brands in USA,

6. Capgemini creating Capgemini Energy by spinning off TXU Corp’s back offices in Texas

7. General Atlantic creating Exult (later acquired by Hewitt) with a carve out of back-office from BP North America.
Over the last 24 months some high profile transactions, including the Citigroup sale to TCS have renewed interest in spin-off’s.

The UBS deal was transacted at a relatively attractive price for Cognizant who paid a significantly lower on a “price per head” basis than the $505 million paid by TCS for Citigroup Global Services last year. The deal also helps Cognizant move from its ITO roots into the BPO and KPO markets – precisely the areas where global outsourcing firms now depend upon for growth.

Expect a wave of similar transactions to follow – as these aging Captive SSC’s look for step change at a time when their owners are more eager than ever to covert these assets into cash. At the same time the IT Outsourcing providers have seen their historic 20%-30% CAGR evaporate and are now looking for new ways to grow.