Business Today

Lights in the tunnel

A US slowdown may be an opportunity for Infosys.

By T.V. Mahalingam        Print Edition: Sept 23, 2007

A super-strong rupee, a subprime crisis and the possibility of a slowdown in the US are making analysts back home gloomy. But the country's second largest it company, Infosys Technologies, seems confident of not just weathering the uncertainty but even profiting from it. Infosys CEO S. Gopalakrishnan believes that the subprime crisis and a slowdown in the US could actually boost outsourcing to India.


"We have not seen any slowdown in the number of deals or any such thing from the US so far. When companies are looking to cut down costs, offshoring makes a lot more sense," says Gopalakrishnan, who adds that the company is planning to increase rates to make up for eroding profits, thanks to the appreciating rupee. Infosys plans to increase fees for new customers by 3-4 per cent, and will also push for a 2 per cent hike in rates from existing client contracts. Infosys BPO CEO Amitabh Chaudhry says that the impact on the tech bellwether's outsourcing business "should not exceed $1 million (on revenues)."

International analysts believe that a price increase by Infosys, even in such uncertain conditions, may not hurt the company too much. "At the moment, the prices that Indian vendors offer are still much more inexpensive than what onshore companies can offer. So, I suppose a price increase of 3 per cent would not hurt. Similarly, onshore vendors are also increasing their prices by the same level," says Paris-based Dominique Raviart, Senior Analyst, Ovum, a consulting firm. Raviart, however, sees the price advantage of Indian companies eroding over a period of time, even though he says it's not "time to panic yet."

In an effort to reduce its dependence on dollar revenues, Infosys hopes to step up its focus on increasing non-dollar revenues. Gopalakrishnan says that the company is receiving a lot of traction from the European market. "Our European revenues have gone up considerably from 9 per cent in 1999 to 14 per cent in 2003-04 and to above 26 per cent today. In terms of geographical mix, ideally, we would like have 50 per cent of our revenues from the US, 30 per cent from Europe and 20 per cent from the rest of the world," adds the CEO.

Infosys also has been trying to expand its operations in China but admits that growth has been "slower than expected" in the Red republic. Infosys has 700 employees in China. Says Gopalakrishnan: "It's a geography that can't be ignored considering the fact that we are all talking about a talent shortage. China produces about 6,50,000 engineering graduates as compared to 4,50,000 from India.

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