Tuesday, September 11, 2007

Weekly Note September 2 Week

L&T Infotech to open office in Dubai

L&T Infotech, a subsidiary of India's largest engineering and construction company Larsen and Toubro, is entering the GCC with a commercial office in Dubai.

"We have already applied for a licence to set up our regional base in Dubai and, if approved, we will set up the business in few months time," Vijay K Magapu, chief executive of L&T Infotech and member of the L&T board, said.

"The IT services businesses in the Gulf is about $600 million annually and we'd like to achieve a $100 million annual turnover in three years," he was quoted as saying by the Gulf News.

Boeing may pilot captive unit in India

The $65-billion aerospace and defence behemoth, Boeing, is evaluating a captive centre and defence sub-assembly line in India apart from capturing business across the aerospace spectrum, including manufacturing, engineering, BPO, KPO, maintenance and raw material sourcing. Boeing could take the JV route to set up its captive centre or could establish it independently.

If that happens, Boeing will join a host of multinationals, which entered India through partnerships before setting up their captive centres. Boeing has partnerships with several Indian technology majors such as Infosys, TCS, Infotech, HCL and research bodies like HAL and Indian Institute of Science in India. “Targeting over $50-60 billion opportunity in the long-term across the civil and defence aviation, and with availability of skilled talent pool, I don’t see any reason why we should not have our own Boeing facility in India,” Boeing India president Ian QR Thomas said. Ian declined to divulge further details about the nature of the captive centre.

While numbers on investments and scale of operations are still in the evaluation stage and depends to some extent on multi-role combat aircraft order apart from other defence orders, Boeing globally operates an technology integration and design captive centre in Moscow. The captive centre has 1,200 engineers engaged in mission-critical work. “Globally as far as captive centres are concerned, we go for tools, technology and talent. India has the potential to emerge as an aerospace constellation,” added Thomas.

Boeing has gained traction in both Indian commercial aviation and defence space with the US major running for $10-billion order for the purchase of 126 multi-role combat aircraft. Boeing has also submitted a proposal to develop and deliver eight long-range maritime reconnaissance and antisubmarine warfare aircraft to the Indian Navy. The Boeing P-8I Multi-mission maritime aircraft, a variant of the US Navy’s P-8A, is currently under consideration by the MOD for India’s maritime requirements.

Customer is today looking at an end solution

IBM employs more than 40,000 by far the highest among the global IT giants. Shanker Annaswamy, IBM India’s managing director talks on its India strategy.

The IBM chairman had announced $6 billion FDI last year. How is that going?

After the chairman’s (Sam Palmisano) announcement, we explained that the milestones are really about bringing investment into India both from global strategic point of view and also from domestic point of view. We talked about bringing in a very high-end system and technology lab, which will bring in tremendous capabilities of our mainframe and other servers and storages into the country. Customers can bring their technical team to network with ours. That has been completed. It is a high-technology high-investment lab.

We also talked about a research centre purely focusing on telecom. India gave us a great model through the Bharti relationship. That business model is again unique for doing telecom research. How do you do a call for two cents, or less than two cents, and yet make money was a big revelation. It is not just about pricing. It is also about how you bring an on-demand solution to this kind of a dynamic market.

Those are the stuff we are looking at. The next milestone was the high-performance-on-demand solutions lab (Hi-pods). This is the lab where really high-performance solutions are brought in and the customers can network through the lab with the entire technical team across the world. Then they can leverage that.

This lab is again in Bangalore. We have recently opened in Delhi another lab called the industry solutions lab. That is largely to address the domestic market. When we looked at the domestic market we felt we should go more and more towards a solutions approach. We are great in point products like servers and storage and stuff like that. But no longer is the customer buying a point product. He is looking at an end solution. So how do you, for example, demonstrate solutions in banking or future solutions in retail?

How do you assess the domestic demand for your services?

In the domestic market we are looking at telecom, banking, BPO, infrastructure solution, retail and government. We are building up solutions for the Delhi airport, which we won against tough competition. Real estate is another example in the infrastructure category. We are looking at retail where we have core competency. In banking, apart from core banking, we are looking at payment systems. We are also looking at branch productivity, Basel II. We announced a core banking deal with Canara Bank a few years ago. There is a huge opportunity in the government. We won the CBDT infrastructure deal, which is going well.

Very interesting things are happening in e-governance. More than 15 state governments are working on e-governance projects. The challenge is to expand them, make them scalable. If there is a treasury or land record work we have done, how can we replicate it? Then there is the SME segment. I think India’s big growth will come from the SMEs and unless we enable them we would be missing out on a big opportunity. That is why we recently launched with ICICI the SME tool kit. There is micro-financing. We are working with the Jan Lakhmi group. IBM can contribute in each of these to make a difference through the globally integrated enterprise framework.

IBM is the most visible MNC challenger to the famous Indian challenge pioneered by TCS, Infy and Wipro. Are you satisfied with the way things have gone?

From whatever we have publicly stated, we are extremely happy with India and its model. It is a key component of the globally integrated enterprise model. In the business model of IBM, emerging economies contribute to a sizeable portion of the growth. If the IBM corporation is looking at 6%-7% growth, they look at contribution from emerging markets as a certain portion, which would be high. What really impresses the corporation is the rate of growth. We declared recently that we grew in Q2 45%, which is faster than the market and therefore gaining share. And our strategic outsourcing we grew almost 150%. And, large and small put together, we announced eight deals in the first half of the year.

'We're confident Oracle will grow fast here'

India is one of the fastest growing markets for Oracle in terms of revenue, as well as being its largest research and development presence outside the US. Krishnan Dhawan, managing director, Oracle India spoke on the company’s plans.


India is the fourth largest market for Oracle in the Asia Pacific (APAC). What plans does the company have to make it one of the top three?

India and China continue to be the high growth markets for Oracle in the APAC region. Given the outlook for future economic growth and with continuing increase in IT adoption, we are confident that our business in India will grow fast. (According to market intelligence firm IDC, Oracle had 72 percent of the database market in India in 2006, a 79 percent year-on-year growth rate)

Though Oracle is the market leader in India in several segments, you have been losing ground in a few, especially in areas like ERP and SMB...

We have over 4,500 customers in the SMB space. Last year, we put in place a high growth city initiative, as part of which we established points of presence in the non-metro, high growth cities in India, taking our presence to over 20 cities. We managed to win over 300 new customers in the database and middleware space and empanel 70 new partners because of this.

We also launched the global Oracle Accelerate programme in India earlier this year to help take industry vertical-specific applications to our customers with the help of partners. Two of our certified partners, Zensar and EBZ Online, have launched special market initiatives to take ERP to small manufacturing companies and banks, respectively.

In addition, we are introducing new business models aimed specifically at the SMB market, such as CRM (customer relationship management) on demand and hosted ERP solutions. These will enable SMBs to benefit from the use of the technology without having to undertake large upfront investments.

What is the Emerald India initiative?

Emerald India is an initiative to identify key India-specific innovation and market opportunities and put in place strategies to meet those requirements. The launch of our e-governance centre, the launch of Think.com in Hindi, an SMB penetration focused programme, are all part of this initiative.

Any more acquisition plans in India?

We are not in a position to comment on our future plans.

In conversation with Phaneesh Murthy, CEO iGATE

When many sections of industry were facing a crisis due to the rupee appreciation, iGATE was ready to face the menacing wave. The company constantly reviewed its hedging strategies in an attempt not to be worse off than what the economic factors dictate. In an exclusive interview with Phaneesh Murthy, CEO, iGATE this newspaper found out what makes this company stand high despite the crisis. Murthy, who took over as CEO of iGATE Global Solutions in August 2003 has pioneered the iTOPS (integrated technology and operations) model in iGATE. A graduate of the Indian Institute of Management (IIM-A), Ahmedabad and Indian Institute of Technology (IIT), Chennai Murthy was a member of the board, worldwide head of sales and marketing, and head of the communications and product solutions group at Infosys.

Excerpts from an interview with Murthy

Rupee appreciation is becoming a serious concern for all companies. How has iGATE tackled the issue? What are the measures you have put in place?

We have taken several measures to combat structural changes taking place in the rupee–dollar parity and its consequential impact on our business. For over a year we have been attempting to include exchange rate provisions in customer contracts that would make material changes in the exchange rates trigger a discussion to relook at the pricing and we have had fair degree of support from customers. We are tightly monitoring the benchmark — in the last quarter alone we could improve our utilisation by over 350 basis points. Our strategy is de-risking from currency concentration and in the last couple of years we have grown our Canadian operations in North America. Our focus is to expand euro revenues in the future.

Do you see a decrease in the operating profit margin due to the rupee appreciation? How has this affected iGATE?

In the last two quarters when the rupee appreciation was the steepest, our margins were better than expected. We could recoup much of the impact as a result of the mitigating measures we undertook to protect margins. As long as the appreciation is not steep we will not be too concerned, as I believe our margins will be protected.

Out of your total inflows, how much do you hedge? Has there been a change in the hedging strategy?

We have been more closely monitoring our hedging strategies from October 2005. Since then, we have always had almost all of our forward six months net inflow of dollars hedged. Recently, we have even covered a significant portion of longer-term inflows — 12 to 24 months. We have a system of evaluating our hedging actions against benchmarked positions. We constantly review hedging strategies in an attempt not to be worse off than what the economic factors dictate.

Coming to the subprime lending crisis, how has it affected you? Ten percent of your revenue came from mortgage space a couple of quarters ago, and is down to 7 percent in the recent quarter. What is your take on this?

iGATE’s revenues from mortgage services seem to be flattening at the current levels. However, these revenues continue to be at risk in view of the on-going subprime market turmoil. The subprime loan originations in the US have almost ceased and the demand for origination services have dried up. We do not expect this to change in the short term. We would keep focus on mortgage service offerings as our delivery platform and unique pricing model would provide us the means to seize the opportunity that may arise as a fall-out of this crisis

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