On April 21st, ‘06, India-based Satyam Computers announced its results for the year ended 31 March 2006 (Most Indian companies follow an April–March financial year). With registered annual revenues of $1.1 billion in 2005–06, Satyam joined the ranks of TCS, Infosys and Wipro — usually referred to as offshoring’s Big Three — in becoming a billion dollar plus outsourcing company. Both Infosys and Wipro, on their part, crossed the $2 billion mark, while TCS just missed the $3 billion milestone, by a few millions.
A billion dollars, by any account, is a big number.
The number of outsourcing companies that have revenues above that magical figure is also very small. IBM, EDS, Accenture, CSC, HP and ACS — the traditional North American Big Six; fairly specialized Unisys, Fiserv and CGI; and Perot Systems; are the only other integrated IT/BPO outsourcing companies that have a revenue of over a billion dollars. The membership of the club is still fairly exclusive.
The Change Agents
For long, offshoring companies have been considered as a disruptive force big enough to get noticed, but small enough to make any real difference in the market place.
“What they do is: They enter through the back door, quote abysmally low prices, and make the customer dissatisfied with our service,” complained a top executive of a Big Six outsourcing company, just a little more than a year back.
“That is our job,” said Azim Premji, Chairman, Wipro. “If that is what they have told you, I am happy that all of us [offshoring companies] have done a good job,” he added.
And a good job, they have surely done. Not just by growing at 30% plus year-on-year, but by bringing about revolutionary changes in the market place.
When most offshoring companies started making some impact in the nineties, the market reaction was that it was a fad that would go away after some time. It never did go away, it made the smarter incumbents like IBM and Accenture betting big on offshoring and other incumbents following suit after a lot of initial hesitation.
The acknowledgement of offshoring as a sustainable business model was the first big shift.
After the initial success, many research firms started showering praises on them — the “Indians” — as the offshoring vendors, all of which are from India, are often called.
But most often, the tone of that appreciation has been patronizing. Even the research firms have refused to acknowledge their “arrival” till “they manage to win big deals.”
Lately, that has also changed. And only partially, because some of them have won 100 plus million dollar deals, but more because the rules of outsourcing deal-making have changed, shifting more toward smaller, specialized deals. Many CIOs have admitted that offshoring has been a catalyst for this tectonic shift. That is the second major change in the outsourcing space, influenced heavily by the offshorers.
With all this, offshoring companies have grown impressively and the growth shows no sign of stopping. In 2005–06, all the four members of the billion-dollar club have grown at more than 30%, except Wipro, whose BPO restructuring slowed it a bit. Wipro clocked a growth of 27.8%.
And all of them have grown without any significant acquisition. Sure, they have acquired a few companies along the journey for entering a new area, or building a new skill, or getting into a new geography. But the growth has, by and large, come organically. And even the size-obsessed Wall Street has not objected to this path. And that is a huge change.
How Big are the WITS?
WIT is a blogger’s acronym for Wipro, Infosys and TCS. With Satyam’s entry into the club, we have just added it. And it just gets a little reinforced.
Here is what the billion-dollar offshoring club looks like.
TCS posted revenues of $2.97 billion in 2005–06, up 30.2% from the previous year’s figure of $2.28 billion. It was barely $30 million away from the $3 billion mark. TCS had an employee base of 62,832 as of 31st March, ’06.
Wipro’s technology business clocked revenues of $2.39 billion, up 27.8% from the previous year’s revenue figures of $1.87 billion. It had a headcount of 50,000 as on 31st March.
Infosys registered a net sales figure of $2.15 billion between April–March 2006. That was a 36.1% growth over last year’s revenues of $1.58 billion. Its manpower base stood at 52,715.
Satyam, the new kid in the billion-dollar block registered the highest growth rate among the four and grew at 38.1% to post revenues of $1.1 billion, up from $793.6 million in 2004–05. It boasted of a headcount of 23,000.
The billion-dollar story is nowhere near its end. At least two more offshoring companies are waiting in the wings.
Cognizant, which has a January–December financial year, recorded revenues of $885.8 million with a whopping 51% growth. It is a no-brainer that it will join the billion-dollar club in 2006.
HCL, which like the WITS, is an India-based company, however, has a financial year of July–June. In the first nine months of the current year, it recorded revenues of $706.23 million. According to its own guidance and analyst expectations, HCL will also finish its year with revenues in the excess of $1 billion.
Add the two to the club and what you have is a clean SWITCH— Satyam, Wipro, Infosys, TCS, Cognizant, HCL — a SWITCH to the era of offshoring. And it is just the beginning.
