Is the ADS issue another of master image manager Murthy's moves to increase Infosys' visibility in the US? It well could be

Thirteen us cities in 13 days. That was Infosys' Chief Mentor Narayana Murthy's travel schedule in the second half of July. Laptop and coo S. Gopalakrishnan in tow, he braved red eye flights and 15-hour days- a gruelling schedule even for a habitual global 'gallivant', as he is wont to describe himself. Meanwhile, his lieutenants CEO Nandan Nilekani and CFO Mohandas Pai were on a tour of Europe and South East Asia. The agenda: to drum up appetite for the company's American Depository Shares (ads) issue. This isn't a fresh issue: Infosys is offering its existing shareholders an opportunity to sell their stock, a first for an Indian company.

Then, Infosys isn't a stranger to firsts. The company has mastered the art of coming up with attention grabbers that keep up the hype and allow the stock a neat little premium. In 1994, this was a detailed annual report with a management discussion; in 1995, financial statements according US GAAP (generally accepted accounting principles); and in 1999, a nasdaq listing.

At the close of its offering, on July 25, 2003, the Infosys stock was trading at Rs 3,513.20 on Bombay Stock Exchange and the ads-two Infosys ads equal a share-was trading at $55 on NASDAQ. That translates into an effective price differential of Rs 1,546 a share.

Some of the outcomes of the issue are apparent. It will reduce the arbitrage between the Indian stock price and the ads. Indian investors can cash in on the price difference. The supply of Infosys shares, or float, as marketmen refer to it, will reduce and the stock price could tighten up. And some shareholders including promoters and employees can hold sale proceeds in dollars overseas (recent Reserve Bank of India norms allow this) and use it for education or medical treatment. But that isn't all there is to the issue.

The real reason for the ads issue may lie in the theme of Infosys' internal strategy meet held some 18 months back-globalisation. Going global isn't merely a cliché for Infosys; it is an imperative. Today, Infosys competes with IBM and Accenture (formerly, Andersen Consulting) for customers.

In the past, Murthy has admitted that Infosys has made it to the last round of billion-dollar-multi-year deals, only to gracefully lose out to one of these companies. By investing in their India operations, companies like these two, and others of their ilk, have been able to offset Infosys' India-advantage.

What better way to combat them, than to go global (and acquire, to complete the logic, a global front-end)? Globalisation is also a master political move that could help the company avoid the backlash from being seen as an Indian company employing cheap hands and benefiting at the cost of American jobs.

A Mainstream US Stock

Could that be the objective of this exercise? At the end of the ads issue around 10 per cent of Infosys' equity will be in American hands, on American soil. If the stock is actively traded in the US market, and if the media covers it extensively, then Infosys gets to tell the India story. And Murthy, and the company, both masters of image-management, would like nothing better.

''Infosys had the gumption to dream big even as early as 1995. There would be references to Andersen in meetings even when we were just a 1000-man company,'' says Sudha Kumar, the former head of corporate marketing at Infosys who now consults for several software companies.

All along, it has striven to create a franchise with different stakeholders, a process in which its marketing team-at one point in time it had more marketing people than a few of its closest competitors put together-played no small part. Since 1998, Infosys has hosted customer meets, branded Milan, in the US; 2000's event happened at New York's tony Waldorf Astoria.

These meets aren't just about style and ostentation and star-speakers like Larry Bossidy, Bob Dole and Tom Peters. They are about a company's confidence in its ability to execute. Infosys, Milan advertised, wasn't afraid to have its customers meet with each other and share experiences. Five years ago, that was a very big deal-software projects are notorious for overruns.

Another initiative that was meant to signal the company's entry into the big league is the Infosys-Wharton business transformation award. The idea came from a junior employee in the company's marketing team and Murthy decided to run with it.

The company ran ads in the Wall Street Journal for the award. Only companies with a turnover over a billion dollars and which had used it for strategic reasons were eligible for the award. The awards ceremony was held in Berlin and New York and gave Infosys visibility among Wharton alumni and global CXOs.

All along, the company has been building a brand among its potential employees. For several years now, Infosys has run a global internship programme. In the beginning, Murthy would pick up the phone and call his acquaintances in academia. This year, Hema Ravichandar, VP (HR), spent a month on the campus trail, visiting 30 top colleges and making hour long pre-placement-presentations.

The Nuances Of Going Global

Everything Infosys has done as part of a game plan to transform itself into a global company is relevant, but it isn't enough. For a software services company to become truly global, all its employees interacting with customers need to understand local nuances, a fair proportion of its workforce, and its work culture needs to be global, its software development centres have to be spread across the world, its senior management should have a varied background, and its board needs to have heavyweights from global industry and academia. How does Infosys rank on each of these?

MAKING THE BIG LEAGUE Other Indian companies are going global too, but no one has made a global offering for the reasons Infosys has.

Dr. Reddy's global issue may have well been prompted by its desire to raise more capital for R&D A decade from now, India could well boast a few dozen companies that meet the definition of 'global'. Today, apart from usual suspects in the software services and pharmaceutical sectors, large old-e companies such as Essel Packaging and Hindustan Inks have a significant percentage of their revenue coming from overseas markets. And whoever thought we would ever be cost effective enough to export steel to China! A truly global company needs to have production facilities wherever in the world it is cheap to produce. Sure enough, there are Indian companies that now meet this criteria. Ranbaxy manufactures out of seven countries, including China. Essel has factories in China. And Asian paints has production facilities in several countries around the world, largely thanks to acquisitions it made in Singapore and Egypt. Hiring world class talent is another aspect of going global and Dr. Reddy's is doing just that. It set up research facilities in Atlanta because many scientists may want to be where the action is. Infosys will also not be the only Indian company to have a significant part of its equity traded in the overseas market. About 26 per cent of ICICI Bank's equity is traded overseas; the proportion is 23 per cent for Dr. Reddy's. But both these companies raised much-required capital with their overseas floats. In Infosys' case, the idea seems to be to spread equity rather than raise capital. In the global scheme of things that ranks a notch higher.

At the core of Infosys' global gambit lies its ability to change the mindset of its 15,000 strong workforce. As one hr consultant puts it, Infosys' objective used to be to hire people "to whom it could do things" and not those "who could do things to it". Today, the consultant in question is training Infosys' employees to make them "consultants".

A global culture is tough to build. Lilian Jessie Paul a former brand manager at Infosys who has just joined start-up Quintant, recollects how employees at Infosys' US office "would e-mail each other and arrive at the cooler at the same time for a cup of coffee; some of them would not greet American employees". Breaking into the vernacular or kidding around is simply not on. It's also no secret that Indian software companies are built around geeks putting in long working hours. Most of Infosys' American employees believe the Indians don't have a life.

At a professional level, non-Indian employees require a very unambiguous job definition. Infosys' foreign employees had all sorts of problems with sales targets that would increase every quarter.

Nor has the company been able to induct non-Indians in any significant number into its senior managerial ranks. Jan Smith, a Belgian-American, heads the consulting business which contributes to a very small percentage of the company's revenue. And Infosys, some company-watchers claim, hasn't made an acquisition for pretty much the same reason that it hires people ''it can do things to''. It has hired a human resource expert to study post acquisition integration issues and is not yet confident of being able to absorb people well.

One-and-a-half years ago Infosys had also identified consulting as a growth area. That required it to undertake some serious restructuring. For instance, in a consulting company, the delivery and sales is handled by the same consultant who understands both business needs and technology. But Infosys had an impressive sales machine and did not want to risk turning that on its head. Its delivery managers, who are all Indian and based in the country, could not have handled sales too.

So it came up with a halfway solution. Each account would have a sales manager and a delivery manager in addition to global account managers. So several delivery managers relocated to the US and Europe. But when the downturn hit, these managers were moved back.

Infosys doesn't have a development centre outside India-it had to shelve its plans for a China centre-although, at this point in time, it makes economic sense to be based out of India.

The company's senior executives did not speak to Business Today because of the ongoing ads issue, but one can sense that several things are in a flux right now. Talk to people in the know in Bangalore and you hear that after the stock took a beating, employee satisfaction has taken a dip. Infosys' strong showing for the first quarter of this year may have changed that-raises were handed out within a day of the results being announced, and the scrip rebounded-but that still doesn't make this the best time to launch a global play.

Infosys has also been plagued by a spate of exits in its marketing organisation. After the departure of Phaneesh Murthy, several regional heads have left. And more continue to. Phaneesh Murthy lured away Madhav Mohan, who used to head the company's operations in Canada and Eastern US and Sanjay Vishwanathan, who was the head of its UK operations. Ayan Chatterjee, former sales head of Western US has joined Syntel as head of sales.

Some industry watchers believe Infosys' rival Wipro has a more global outlook. Vivek Paul, CEO, Wipro Technologies, is based in the US. Tim Matlack, the head of the energy practice of American Management System, a company that Wipro acquired for $24 million now heads a much larger utilities practice out of the US. Wipro also hired several industry vets in the US. But the verdict is not out on Wipro yet, not until it begins to reflects in the results. After all, several of its global recruits, including Steve Zucker, Chief Executive (Total it Outsourcing) who was hired from EDs, have quit.

To come back to the original question, other than more visibility, what does a higher float in the US do for Infosys? Some surmise that it will allow a strategic investor to make an open offer and build up a significant stake in Infosys. That'll be an entirely different way of going global.