Infosys turns 25, faces new challenges

Infosys Technologies, India’s second largest outsourcer, is celebrating its 25 year anniversary in Mysore near Bangalore, where the company operates one of several services delivery facilities in the country.

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As part of the celebrations on Monday, the company will remotely open trading on the Nasdaq Stock Market in New York, the first time an Indian company has been honored with this privilege. Top Indian leaders, including the country’s finance minister P. Chidambaram are in Mysore for the celebrations.

This is a far cry from the 1980s when the company, then known as Infosys Consulting Pvt. Ltd., was a low-profile startup, operating out of a residence that was converted into an office in Jayanagar, a leafy suburb of Bangalore.

In 1981 the company’s seven founders, including current Chairman N.R. Narayana Murthy and Chief Executive Officer Nandan Nilekani, quit their jobs to start a new company focused on the export of outsourced services. Their investment: Indian rupees 10,000 ($1,000). “We collected advances from our customers, and that is how we managed,” Murthy said in an interview earlier this year.

In 1993 Infosys went public. A decision to move services delivery offshore to India for better margins and quality required large investments in facilities, communications and computers, Murthy said.

In 1999, Infosys became the first Indian company to list on Nasdaq.

After reporting a 103 percent increase in revenue and 115 percent increase in profit in the fiscal year to March 31, 2001, the company saw revenue and profit growth drop 32 percent and 25 percent respectively in the next year as a result of the dotcom meltdown and the recession in the U.S., it largest market.

Infosys moved quickly to add new customers, increase revenue from outside the U.S., and launch new services, including consulting, business process outsourcing and product engineering for non-IT companies. In the fiscal year ended March 31, 2006, the company crossed the $2 billion sales mark, posting revenue of $2.15 billion, up by 35 percent over revenue of $1.6 billion a year earlier.

The share of Indian service providers has risen to 5.2 per cent of the total value of outsourcing contracts signed so far this year, up from less than 3 percent last year, and just over 1 percent in 2004, according to sourcing consultancy firm Technology Partners International Inc (TPI) of Houston, Texas.

However, Infosys faces some big challenges ahead. For instance, multinational services companies such as IBM, Accenture, and Capgemini have recognized the cost benefits of offshore delivery of services and set up large operations in the country. They are now competing with Indian outsourcers both for customers and staff, often offering lower prices and higher wages to lure both, according to TPI.

Large multi-billion dollar deals have eluded Infosys as well as other Indian outsourcers. Customers are reluctant to give large outsourcing contracts to companies that are not headquartered in their region, according to Murthy. In addition, large outsourcing contracts often involve transfer of staff to the contractor. “We are not sure we have the competence to acquire employees from a customer and integrate them into our culture,” he said.