Posted by: Steve Hamm on January 15
In recent years, corporations have adopted the mantra of geographic diversification of off-shore services. Still, about 90% of this work is done in India. China has been slower to develop than people thought. Ditto Eastern Europe. The Satyam scandal will likely force corporate leaders to think again about diversification, and some may do something about it. There's growing evidence that the capabilities in China, in particular, are developing nicely. For instance, with Softek's acquisition of I.T. United, the Chinese operations are taking on global disciplines. Another bright spot in China is Symbio, a Beijing-based product development outsourcing specialist that has been growing rapidly over the past four years. In fact, I think Symbio could be a model for how the nascent Chinese software industry could leapfrog India.
Continue reading "Revisiting the China Alternative"
Posted by: Steve Hamm on January 13
The initial shock of the Satyam scandal has passed. The government's appointment of a new board helped. Now comes the process of stabilizing or unwinding its relationships with customers. Competitors are lining up to "help out." Patni, Wipro, and CSC all have put together programs for moving Satyam customers over to their services in an orderly fashion. Patni, for instance, has about a dozen customers who also farm out work to Satyam. It's approaching them as well as non-customers with offers to take over the work. "We're talking about business continuity. We'll supply support from our employees, or take over their employees. It's all within a legal framework," says Surjeet Singh, Patni's COO and CFO. While Patni's main operations are in Mumbai and Pune, it also has offices in the cities where Satyam is strong, in Hyderabad, Bangalore, and Chennai. Predictably, the Satyam blowup is also changing the landscape in the competition for new contracts or renewals. Says Singh: "Corporations aren't deciding in favor of Satyam, and, in renewal situations, they're not renewing."
Posted by: Steve Hamm on January 13
While the Indian outsourcing community is flipping out about the Satyam scandal, IBM, which has a major presence in India, is opening its newest service delivery center in....East Lansing, Michigan. IBM is setting up an unusual sort of delivery center on the campus of Michigan State University. The company plans to hire MSU students and graduates, plus others, to develop software applications and modernize computing systems for government agencies and universities. It plans on hiring 100 people by June and 1,500 eventually. An IBM spokesman said this isn't a low-cost labor play; it's about the talent. But I'm betting salaries for software programmers are a lot cheaper in East Lansing than they are in Somers, New York; Boston; or Silicon Valley--where IBM employs a lot of programmers.
Posted by: Steve Hamm on January 13
The slowdown in demand for off-shore tech services is starting to show up in earnings reports. Infosys reported this morning, meeting revenue forecasts and beating on the earnings side, but the evidence of slackening demand was unmistakable. Revenue rose just 14% year over year, and just 1% from the previous quarter. "After the Lehman failure on Sept. 15 we saw a dramatic change in sentiment. The whole world changed. The sentiment turned very negative," Infosys CEO Kris Gopalakrishnan told me on the phone today.
Customers are delaying decisions, delaying the start of new projects, and changing the mix of work they want done. There are fewer new custom software development projects and hardware engineering projects, and more maintenance-type work--such as tech infrastructure management. "Some customers aren't even spending their budgets right now," he says.
Still, Infosys plans to go ahead with the hiring of about 15,000 "freshers" it recruited from this year's college graduates. It will extend their training period from 16 to 24 weeks. Gopalakrishnan expects the recession to go on for 12 to 18 months, so, if that happens, the new employees will be ready for deployment when demand starts to rebound. "We're well prepared," he says. "When the recovery happens, the comopany is in a very strong position to take advantage of it."
Unlike some of the other tech services outfits, Infosys isn't making strong moves to pick up Satyam customers. It's not actively trying to pick off Satyam customers, though it accommodates them if they approach Infosys looking for help. When the company gets resumes from Satyam employees, it doesn't act on them. "There's a responsibility not to take advantage of the situation. The new board is trying to decide what they want to do. We don't want to precipitate anything," he says. That admirable restraint.
Posted by: Steve Hamm on January 12
News of Satyam's financial scandal gave way today to a report from Wipro that it had been censured by the World Bank--which sent its stock down 8% in trading. It turned out that worries about Wipro were overblown. The World Bank's decision to make Wipro ineligible for contracts for four years was actually made in mid-2007. It concerned infractions committed not by Wipro but by World Bank employees who violated policy by accepting "friends and family" shares when Wipro went public on the New York Stock Exchange in 2000. Still, the Wipro incident shows that as a result of the Satyam blowup, Indian companies are going to have to be squeaky clean or risk getting a drubbing on the stock market.
Wipro argues that it did nothing wrong and doesn't deserve the beating its stock took. It argues that when it offered stock to high-ranking employees of some of its customers at IPO time, it was doing what many US companies did during IPOs in those days--which is true. It required people it offered the stock to to sign declarations that they were not breaking company ethics policies. Three people connected with the World Bank signed the declarations. "We took the declarations at face value," says Suresh Senapaty, CFO of Wipro technologies. World Bank officials came to Wipro in 2007 and said the deals had violated their ethics policy, but agreed to keep the matter private. They came back to Wipro on Sunday and said their new policy was to make all such matters public.
So, is Wipro blameless? I'd say no. Even though the offer it made to employees of customers was commonplace in the tech industry at the time, that doesn't make it right. When you give an employee of a customer an opportunity to buy shares at the IPO price, you're essentially giving them a discount. And a discount is a gift. It's one thing to give a customer a bottle of scotch or a free golf outing. But the opportunity to reap a cash windfall off of stock is another thing. It wasn't and isn't illegal. But it sure smells like a bribe. Wipro has a reputation as one of the most ethical companies in the Indian tech industry. So this incident puts a black smudge on its name. Hopefully, this incident will make what seems to be a very clean company even more careful about how it conducts business.
