IT major Infosys has decided to revamp its efforts in emerging markets ? a geography that has not yielded great results for the company over the years ? in a bid to narrow the revenue gap with market leader Tata Consultancy Services. The new initiative, to be driven by V Balakrishnan, the outgoing CFO, will be crucial to the company?s fortunes, Infosys? executive co-chairman Kris Gopalakrishnan told FE in an exclusive interaction.
An examination of the company?s geographic revenue spread reveals that the ?rest of the world? territory, minus the key markets of the US and Europe, has been stagnant for a long time. In the September quarter the territory yielded 12.6% of its revenues, barely going past the 12.5% share recorded in the June quarter. During the same quarter last year, it fetched 12%. The slow growth in this region has been a worry for Infosys for some time now. The story is not very different with its Indian domestic business, which has fallen to 1.6% of total revenues from 2.2% during the corresponding period last fiscal.
Gopalakrishnan wants a change in fortunes in this space, and pretty quickly at that. ?Emerging economies around the world have been growing 6-8-10%. We have not been able to take advantage of it. There are many short-term opportunities to leverage in these parts,? he said.
This is where Balakrishnan?s role becomes crucial. ?Bala is the right person for this role. He asked for a new challenge, and we have given it to him,? Gopalakrishnan said.
Infosys’ long-term plan is to get to a stage where revenues are split 40:40:20 between North America, Europe and the rest of the world.
At the moment the US contributes 64% and Europe 22%. This imbalance is what the company is trying to correct. But obviously, that’s not an easily achievable target with Europe slowing down as an economy.
The slow pace of growth in emerging markets is primarily due to the inability of Indian IT vendors to exploit the tough Chinese and Japanese IT services markets. Infosys China was incorporated in 2004. Last fiscal it recorded over $100 million in revenues amid trying circumstances. It employs around 3,500 employees now, but plans to add 2,000 more despite high attrition levels. Currently, Infosys China earns most of its revenues from offshore services, and the rest from services carried out for subsidiaries of multinational companies.
Though Infosys China contributes less than 1% to its total revenues, it is important to stay invested. Chinese software industry revenues have risen nearly 30% year-on-year for the past three years and the industry is valued at around $150 billion.
Infosys is trying to spread its wings in Japan too and recently opened its second office in Nagoya. It had first entered Japan in 1997, but has not been able to make much headway. It employs about 1,000 people in Japan.
These are the markets that will challenge Balakrishnan, when he moves on from his responsibilities as CFO starting November 1. Infosys needs to spend a lot of time trying to devise ways to win over these geographies and if it succeeds in doing so, that will result in a big boost to the company?s sagging fortunes.
?Growth of emerging markets is a big part of the Infosys 3.0 strategy and it is important that we pay great attention to it,? Gopalakrishnan added.
