Infosys' Bangalore campus has been a beacon of innovation. Will it remain so?
For years I have impressed Indian friends by telling them I was in the office of Infosys' founders one morning in 1991, when a phone call from the U.S. told them they had won their first $1 million contract, to build an inventory-management program for Reebok. In the context of the Indian IT industry, the experience is analogous to being in the room with Steve Jobs and Steve Wozniak when they sold their first Macintosh. The two Infosys founders I was visiting that morning included me in their celebration: N.R. Narayana Murthy, Nandan Nilekani and I toasted each other with cups of sweet, milky tea.
If I get props for that story, it's because, among Indians, Bangalore-based Infosys has a cachet not unlike that of Apple in the U.S.: Infosys is cool. The story of its founding in 1981 — by seven friends with $250 between them — was part of industry lore a decade later, at the time of that phone call. Infosys' revenue was just $5 million, but it was one of the standout performers in the Indian IT sector, then in its infancy. It was a new type of company for the country, not family-owned and -operated but created by executive entrepreneurs.
As the company's revenue has grown (it now exceeds $7 billion), so too has its reputation for good governance, social responsibility and people management. It is routinely ranked among India's most admired companies — and its greenest and most conscientious corporate citizens. In a country with few international business successes, Infosys is as much a symbol of the newly emerging India as it is its barometer.
India's economy is at a point where growth has slowed, and the next leap forward requires bold new strategies. Infosys finds itself in a similar predicament. For the first time in years, the company has had to revise downward its growth estimate: in July the company said sales would expand 5% in fiscal 2012 — 13, instead of the 9% it had previously predicted. When it reported disappointing operating margins for the quarter ending on Sept. 30, its share price slumped by 8.8%. "It's a challenging time," says S.D. Shibulal, who was on the other end of that famous phone call from the U.S. and who now runs the company. Infosys is hardly alone. Long the pacesetter for the Indian economy, the IT industry is struggling to keep up with its success over the past 20 years. The country's tech companies are collectively projected to expand 11% to 14% this year, half the rate of growth in the go-go years of the past decade.
On the surface, all Indian IT companies face the same set of problems. Their biggest market, the U.S., has slowed down, and their presence in places like Asia and Europe is too small to compensate. But there are also more-fundamental challenges at play. India's traditional advantage in technology services — its vast annual supply of English-speaking engineers willing to work for a fraction of what their Western counterparts are paid — is being eroded by a decline in the quality of education, higher salary expectations and stiffer competition from countries like the Philippines, Malaysia and Indonesia, where tech salaries are even lower. If the trend continues, it will imperil the business model that underpins India's IT sector.
Infosys believes it knows a way out.
SMARTER, NOT HARDER
for over a decade, foreigners seeking a glimpse into India's mighty IT machine made a pilgrimage to the Infosys campus a three-hour drive southwest of its Bangalore headquarters, where tens of thousands of young software engineers have been trained for world domination. When at full capacity, the campus can accommodate nearly 15,000 students, the majority of whom are put through six months of training. Most of them end up at the offices of Infosys' clients around the world, maintaining or improving existing IT systems.
Infosys spent over $450 million on this campus (a second, smaller one is in the western city of Pune), and the investment has paid off handsomely. The company's business model has depended on being able to produce huge numbers of skilled engineers, and its workforce is currently in excess of 150,000 employees. (Microsoft has fewer than 95,000.)