Wipro's Azim Hasham Premji: Aquisitions from the core of his strategy

WHAT SETS WIPRO APART

» Effective use of cash on balance sheet for acquisitions » Presence across the IT value chain from hardware to software to BPO to consulting » Superior processes, courtesy focus on process-efficiency » Transformational excellence; it has become a different company in around five years » Strengths in high-end software services

Infosys' Nandan Nilekani: Customer engagement forms the core of his

WHAT SETS INFOSYS APART

» A values-driven approach to growth » Superior human resource practices that translate into a motivated workforce » Managerial bandwidth, with a strong team of senior executives » Marketing skills and customer relationships that translate into more repeat business » Record of transparency and governance

Crises create champions. All through the go-go 1990s, Infosys and Wipro showed enough traits to be labelled heroes. The first set new standards in transparency and human resource management and marketed itself exceedingly well to customers, analysts, and to the media. The second acquired skills in technology services and telecommunications-things that worked against it when the US market tanked in the early 2000s-and focused on building robust business practices and managerial bandwidth, the last prompted by the 1998 exit of a team of key senior executives, but remained, like its chairman, chary of the media. Both thrived in an era when the world's companies couldn't have enough of the great outsource-it-to-India pill. It was a magical cure that, at once reduced costs, improved efficiencies, and cut time to market. The stock of the two companies soared. Wipro, quoting at around Rs 440 in January 1996, soared to a peak of Rs 8,911 in February 2000, before settling down to its current Rs 902 levels. For Infosys, the corresponding numbers are Rs 50.62, Rs 10,673 (in March, 2000), and Rs 2,789.

The early part of the 21st century hasn't been kind to India's it services industry. The recession in the US, the main market for companies such as Wipro and Infosys, has slashed it spends and increased customer demands for more rational (read: lower) prices. Marketing expenses have increased in a more-competitive-than-competitive-market. Expectedly, profit margins are down. Still worse, minor signs of resentment against outsourcing work off shore in general, and Indian it services firms in particular have surfaced in countries all over the world. IT multinationals such as EDS, IBM, Accenture, and Cap Gemini are strengthening their Indian operations and hope to take away business from the likes of Infosys and Wipro. The rupee is appreciating. Revenue growth rates have, as they should in such circumstances, descended from the rarefied heights they inhabited in Indian it's glory years. In April this year, the Infosys stock was battered when the company issued a guidance of 22-23 per cent growth in revenues for 2003-04. Seven days later, it was Wipro's turn as it announced a 4 per cent dip in net profit for 2002-03 compared to the previous year. If there is a time for 'management' to come to the rescue, it is this, it is this, it is this.

Tactics Reloaded

The companies themselves-Infosys did not participate in this story because it is in the quiet period in the run-up to its ads listing-realise this. "We have weathered many storms and business cycles in the past and we will sail through the current period also," says Anurag Behar, Corporate Vice President (Quality, Brand & Corporate Communication, and Innovation), Wipro. Behar's sanguineness may be attributed to the fact that the company is already addressing the issues that face it. In the past year it has spent over Rs 700 crore acquiring companies with expertise in lucrative niches or a presence in key service or market segments or star front-end teams (or all). The latest buy in this shopping frenzy is NerveWire Inc., a Newton, Massachusetts-based hotshop that specialises in security consulting; Wipro bought the company for $18.7 million (Rs 88 crore) last month. And Infosys' ability to retain existing customers and add new ones irrespective of environmental factors, reasons Avinash Vashishtha, the CEO of neoIT, a global intermediary that matches customer requirements with service providers, should see it through. "Infosys has been able to consistently deliver value to its customers," he says. "So much so that last year 85 per cent of their revenue was repeat business; and in the last quarter, they added 28 new customers, remarkable in a tough quarter." And if Wipro has sought to buy its way to a front-end and a BPO operation, Infosys has developed them in-house. Either approach can work.

Whichever approach they take, though, Bangalore's tech twins have to navigate choppy waters. Their strategies will have to factor in new constraints such as steadily falling billing rates, increased competition, and a higher marketing spend. Perhaps for the first time in their relatively short careers, the two companies will have to focus on profitable growth; in the past, thanks to the global delivery model and a huge cost arbitrage opportunity, almost all growth was profitable. This sequel is certain to be more gripping than the first part.