Walk around the Bangalore and Mysore campuses of Indian IT outsourcing giant Infosys and it’s easy to become despondent about Britain’s competitive future.
It’s not the grand replicas of the White House, the pyramids and Sydney Opera House so much as the numbers that tell the story.
Infosys adds 20,000 Indian IT and engineering graduates to its 150,000-strong workforce each year, paying salaries of just £5,000 and training them, 200 at a time, in huge auditoria.
It’s nearly all aimed at the West with Infosys, India’s fifth largest company, getting 90pc of its $6bn (£3.74bn) turnover from the US and Europe.
Britain accounts for 12pc – about $720m a year. No wonder the Bangalore campus was a key stop on David Cameron’s India tour last year.
Infosys is a household name in India, with a market capitalisation of $35bn in Mumbai and on Nasdaq. Last week it was the top-rated business in a poll of Indian chief executives and government officials.
From such a high position, one might imagine it’s a little daunting for Kris Gopalakrishnan and Sarojini “Shibu” Shibulal, the new co-chairman and chief executive taking over from the legendary Narayana Murthy in August.
Hardly. Both were among the original Infosys seven who set up the company to sell software with a combined $250 of funds in the second bedroom of a two-bedroom apartment in Pune 30 years ago.
Gopalakrishnan, moving up from chief executive, has Infosys shares worth $1.6bn. Shibulal, currently chief operating officer, is worth $1.1bn.
So how do they feel about the transition? Perhaps not surprisingly at a company with a compulsory retirement age of 60, the two 56 year-olds seem more interested in the next one.
“The first founder left the business in 1989; the second retired in 2000 and the third moved to join the government,” says Gopalakrishnan. “Narayana and another founder are retiring on August 21. That will leave me and Shibu from the founding team. In the next four years we will also retire from executive positions and that’s where the transition to the next generation is.”
There are some key questions to be answered before then. Analysts are fretting about Infosys lagging outsourcing peers such as Tata Consultancy Services and Wipro and complaining that it’s more fanatical about preserving margins than about growth.
The “global delivery model (GDM)” outsourcing and offshoring template that Infosys says it invented also faces a threat with India now more expensive than new outsourcing kids on the block, such as the Philippines.
And technology is changing, with software services migrating to “the cloud” and tablets threatening the dominance of the personal computer.
In the early days, the company’s story trod a sometimes rocky road. The seven founders, led by retiring chairman Narayana Murthy, hit trouble in the early years and Murthy’s wife even had to sell her jewellery to fund the company’s survival. At one point there were concerns that, as a small company with no brand equity, Infosys was as good as dead.
Founder Ashok Arora left to pursue what he saw as greater opportunities in the US and a six-hour crisis meeting of the board very nearly decided to sell the business for $1.5m.
Instead, Murthy offered to buy out any founder who wanted to sell up. One by one, all the founders – including Gopalakrishnan and Shibulal – decided to stick with it.
Some 22 years later, Mrs Murthy runs the Infosys Foundation, a charitable trust, with money that she and other investors have made. The key was the Indian government realising the nation could be a software export powerhouse and formulating an official national computer software policy. Infosys took advantage, realising the prize was much more than mere software.
With the world rapidly adopting computer systems, India’s wealth of English-speaking IT talent and the opportunities for labour rate arbitrage in a globalising world, the company came up with the GDM model.
It took 10 years to go from zero to $5m turnover, 10 more to zoom to $700m and then there was a near nine-fold expansion in the past decade.
Shibulal, who left Infosys in 1991 for a “five-year sabbatical” at Sun Microsystems in the US, prefers to view the company’s development in the language of the internet.
“The first 15 years were Infosys 1.0,” he says. “This was when we innovated the global delivery model and started delivering services, predominantly applications development and maintenance, which accounted for 95pc of Infosys’s turnover in 1999, compared to 38pc today. The 12-13 years after that constituted Infosys 2.0, developing the ability to supply services that allowed clients to become much more efficient and productive.”
Such services, which Infosys calls “business transformation” IT, have grown from almost nothing in 2000 to 24pc of revenue, while innovation in products and platforms, has risen from zero to 8pc of revenue.
Next up is Infosys 3.0, helping clients migrate IT operations to cloud computing, which Gopalakrishnan believes represents the future of outsourcing. “The migration to the cloud can be done more efficiently with better quality using the GDM model,” he says. “And management of the applications on the cloud can be done remotely at lower cost and better quality.”
He also sees great potential for Infosys’s outsourcing model to develop and service the trends for mobile computing and sensor networks .
“Mobility is here already,” he says. “We’re seeing the transition from a PC-based era and sensor networks are probably three to five years down the line. Everything we can think of that should have a processor and they’ll all be connected.
“People talk about fridges re-ordering when you run out of milk, but it’s going to be much bigger than that. The transition to this world will require a huge number of applications to be developed and that’s a huge opportunity for Infosys.”
He cites the iPad, which he believes is about to take off as a business device. “Enterprises are just starting to adopt and integrate the iPad into their networks but this is accelerating and that’s an opportunity for Infosys. Today we’re developing more applications for the iPad for large organisations, banking, retail and healthcare applications. You can do 89pc-90pc of what you used to do on a PC on a tablet. In 10 years’ time I believe everyone in business will be using tablets rather than PCs.”
The two men believe there are great opportunities for Infosys to become more global.
Shibulal wants to serve more clients in continental Europe, starting with Germany and France, and double the 10pc of turnover coming from emerging markets, including India, in the next five to seven years.
“We only started operating in India in the past three years from a services perspective,” he says. “And we’re seeing very strong growth there.” China, Japan, Brazil and Australia are also all targeted.
Having grown in IT services for the banking, retail, manufacturing, energy and utility sectors, Infosys is also now looking for higher growth in life sciences and public services, an approach that saw it add 139 new clients last year.
But what about increasing competition to India as an outsourcing hub? Gopalakrishnan agrees it’s an issue. “In business process outsourcing, there’s competition from the Philippines,” he says. “And there’s an opportunity for countries in Africa and the Middle East where there’s a growing population that’s better educated. Our philosophy is to join in and take advantage of that so we’re setting up centres outside India.
“We have 3,000 people in China. We’re looking at Mexico where we have 450 employees, Brazil, Poland and the Czech Republic and the Philippines so we’re creating centres around the world to leverage the talent available. Some of it will be lower cost than India. Some may be higher but availability of talent will be the primary driver.”
What then of the UK, where Infosys’s strong services base is under pressure with customers squeezed in the austerity climate? “The UK has done very well for us,” replies Shibulal. “Historically, we’ve found that corporates in the UK are early adapters of new ways of doing business and new technologies. Our clients are going through very tough times and looking for opportunities for growth, which means they have to innovate for their own customers. Some of their products have become obsolete, some of their clients have changed and others are demanding new products and services. They’re very budget-constrained so they’re looking to take costs out of their operations and invest either in transformation or innovation work.
“And that’s our sweet spot. When we do operations work for our clients, we not only deliver a tremendous amount of value but reduce their total cost of ownership [by] between 30pc-40pc.” Gopalakrishnan agrees. He says this is vital in an economic environment that is “definitely more challenging”. “ But we still think we can grow the UK and I really don’t believe it will go down as a percentage of our revenues.”
It’s a path that could still be eased by acquisitions, despite Infosys failing 20 months ago when its £407m bid for British IT firm Axon was trumped by a £441m offer from Indian rival HCL Technologies. “Acquisitions are even more strategic for us now,” acknowledges Shibulal. And he does not rule out acquisitions one day in the UK.
Then there’s the company’s “C-LIFE” culture: client value, leadership, integrity fairness to shareholders and excellence .
“Our job is to identify the right people to lead the company and make sure this institution is successful 50 to 100 years on. I think we can do it.”