Infosys banks on low costs - Kris

Interview: Infosys' president discusses the company's strategy for the European market.

By taking advantage of its ability to deliver services offshore from low-cost India, Infosys Technologies can offer IT services to European customers at 30 percent to 40 percent lower cost than they would get in Europe, according to S. Gopalakrishnan, the company's president and chief operating officer.

Gopalakrishnan discussed the company's strategy for the European market in an interview, an edited version of which follows.

IDG News Service: Do you see Europe as a top priority market?

Gopalakrishnan: Europe is probably the No. 1 priority for us. We want to balance our portfolio, which is now tilted towards the U.S., so we are investing proactively in Europe and Asia Pacific, and out of that Europe seems to be yielding results faster than Asia Pacific. Europe as a region is also the second-largest market next to the U.S. It also seems to be opening up for offshore and global sourcing in the last two years. It is far more receptive, and you have large deals happening in Europe, which in turn has given us confidence that this may be the right time to focus on this market.

Europe is also now willing to accept that these deals can be structured differently. In traditional outsourcing deals, you would take over a complete IT department and run it. What companies like Infosys have been proposing is that not all employees need to be brought in, but you need to do a selective transfer. It is better for both the clients and the vendors, and European customers are now willing to accept that.

In Europe, the U.K. is the biggest market for us because it is English speaking. France, Germany, Belgium, Switzerland, and the Nordic countries are the other markets we have addressed. In the future, we need to look at markets in southern Europe like Italy, Spain, and Portugal. We will also expand in Germany and France where the potential is fairly large, but we need to make more investments in these markets, because they require you to hire local people who know the language and the culture. If you look at Germany, for example, the markets are in the financial services and manufacturing industries, and specially in manufacturing, it is very difficult to interact with customers without knowledge of German. In contrast, in the Nordic countries and Switzerland you can make do with English, because companies there have made English the common language for IT.

There is some difference in the type of work that we do in Europe versus the rest of the world. Although Europe accounts for 25 percent of our revenues, on the BPO (business process outsourcing) side, 50 percent of our revenues comes from Europe, and most of that is from the U.K., because language is very, very important when it comes to BPO.

IDG News Service: Do you see an opportunity for Indian companies to offer BPO services in continental Europe in languages other than English?

Gopalakrishnan: It is challenging to offer BPO services in other languages, but we do it as part of an overall services strategy. We do it for example for a client for whom we are providing IT services.

IDG News Service: Is it important to have near-shore capabilities in Europe both for BPO and IT services?

Gopalakrishnan: Near-shore capabilities are required because of the need for local language capabilities. We have a center at Brno (in the Czech Republic) and we have doubled the capacity there in the last year. We are supporting clients in 11 European languages from Brno, and it is mainly in BPO. We also have a disaster recovery center in Mauritius. Since Mauritius is French-speaking, we are supporting some French clients from Mauritius. We have also opened a number of offices across Europe, and these will get larger as we look at larger projects and more consulting assignments.

IDG News Service: Does building more expensive on-shore and near-shore capabilities change the economics of the business?

Gopalakrishnan: The economics of the business will get changed only if you change the model. If the model is our global delivery model where 30 percent of the work gets done near the customer, and 70 percent of the work gets done in a location like India, then the economics does not change. Because if we are spending more, we are able to get higher (billing) rates as well.

IDG News Service: What benefits do you offer European customers in comparison to European outsourcers like Capgemini and LogicaCMG?

Gopalakrishnan: If you look at a pure implementation of the global delivery model, companies like Infosys have an advantage. Earlier customers were reluctant to look at a global delivery model, because they believed that it did not make much business sense for them to do it. The labor laws were also very stringent, and customers were not able to shift the work significantly offshore, and hence they were looking at it primarily from a specialized need or specialized services perspective. Now companies are looking at it from a global delivery model perspective.

IDG News Service: But your competitors in Europe also have an offshore delivery capability.

Gopalakrishnan: We are more experienced doing that. Our services are more mature, and having done this much longer for our clients in the U.S., clients in Europe now want to benefit from our model. [Our European competitors] are not able to scale in India. Compared to the overall size of these companies, their operations in India are very small.

It is just not about having people in India. It is about having your people and processes tuned to the global delivery model. For example, you need to be able to take a project, break it down into components, and distribute that to be done in different locations.

We are organized globally around a client or an industry vertical, so the operation in say Paris or India comes under the same manager who has the incentive to distribute the work better. He has an incentive to move the work to India, while the manager say in Paris of one of our competitors does not have the same incentive.

IDG News Service: What can the customer in Europe look forward to when outsourcing to Infosys? Lower prices, for example?

Gopalakrishnan: The way it works, is that for work done locally we charge the same or slightly more, while for work done in India the charges are different, because of the lower costs in India. That is the reason why overall the project costs are lower, because the more work is done in India at lower price points, the more the customer stands to benefit. The benefit for the customer is from execution at lower cost locations through the global delivery model. The other location we are adding is China. We are starting to support some global clients from China, specially those companies that are moving into China.

IDG News Service: Do your processes need to be tweaked to address the requirements of European customers?

Gopalakrishnan: To some extent, our processes will have to be slightly adjusted to European requirements. The European process is more rigorous, they are much more engineering oriented, than even in the U.S. We will have to aim for a higher level of quality, and higher discipline and engineering orientation for the project. It is about much more rigor and discipline in how we execute, how we test, how we deliver the software.

IDG News Service: European companies are still more reluctant to lay off staff than in the U.S. How do you plan to get around these issues?

Gopalakrishnan: On the staff side, we are willing to take some employees from our customers, but only if it fits into our global delivery model, which requires that 30 percent of the work gets done on site. A lot of European clients are willing to work within those parameters. Part of the reason for that is even though unemployment is high in some countries, it is also true that they are not able to staff a project. Companies are finding it difficult to get the people with the right skill sets, specially in newer technologies like Java, J2E, and .NET. They are also finding it difficult to get staff to work on older technologies like Cobol and CICS because some of the people have retired, and new people are not learning those skills because there isn't a large market for that.

IDG News Service: There is this perception that European companies are more comfortable outsourcing to Eastern Europe.

Gopalakrishnan: There are two reasons for that. One, it may be more acceptable within the organization to move the work to Eastern Europe than to India, because of their common culture, and also because some countries in Eastern Europe are part of the European Union. It is also beneficial from a language perspective, particularly for Continental Europe. On the flip side, you cannot scale in Eastern Europe as in India, and costs are higher. Even attrition of staff in Eastern Europe is higher as people can easily move and get work in another country.

IDG News Service: What cost savings can you offer European customers?

Gopalakrishnan: The savings work out to 30 to 40 percent on overall cost, as compared to getting the work done locally, either outsourced or in-house. Cost is only one factor. We can also offer improved predictability, quality, delivery on time, faster execution, as well as access to resources. There is the saying that you come to India for cost but you stay for quality. That is really true for services.

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