Infosys shifts focus from govt deals to private sector

Indian IT services giant now turning more to contracts in the country's private sector to maintain growth, owing to delays in implementation for government IT projects.
Written by Jamie Yap, Contributor

To sustain growth, Indian IT services giant Infosys says it will refocus more on contracts from private sector corporations in the country, rather than the local government, which currently makes up 90 percent of the company's domestic revenue.

In an Economic Times report Monday, V Balakrishnan, a director overseeing the India business at Infosys and its former CFO, said the company has "sufficient government business in our India order book and deal pipeline to keep the momentum going for at least a year".

"So, we believe this is a good time to reorient ourselves and aim for greater share of private sector work," he said, adding Infosys has eyed opportunities in energy and utilities, telecommunications, and retail.

The government sector takes a long time in contracts finalization and implementation cycles, and that is adding pressure on Infosys, which wants to make up for project delays and cancelations in its main markets of Europe and the United States--where it earns some 85 percent of its income, the report noted.

It also pointed out that Indian government technology projects worth several millions of rupees have been stalled as officials delayed signing off on spending decisions, fearing scrutiny amid the corruption scandals last year.

Manish Bahl, vice-president and country manager at Forrester, said in the Economic Times report that with a general election due in 2014, it is unlikely the Indian government will announce any more big projects and instead be cautious on technology spending decisions.

Infosys is considered a late entrant to India's domestic IT services market, facing stiff competition from earlier players such as Tata Consultancy Services (TCS) and Wipro. About 1.9 percent of Infosys' annual revenue comes from India, in comparison to the 7.5 percent for TCS, its larger rival, the Economic Times report said.

Analysts said in the report Infosys' decision to diversify its revenue portfolio in India is a good move, but the company needs to get some things right in order to successfully compete in the local market.

Milan Sheth, partner at Ernst & Young, said Infosys needs to deliver solutions at competitive price points, cater to small and midsize businesses (SMB), and build a mature network of partners.

Forrester's Bahl added that Infosys' competitors already have networks spanning into Tier 2 and Tier 3 cities, giving them a wider reach. He also said competition in India will only heighten as more companies that previously focused on outsourced work from Europe and the U.S. look for alternative markets to support growth.

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