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IBM for higher investment in India

The software giant aims to invest nearly $6 bn in India and aims to increase its share in country's business.

india Updated: Oct 13, 2006 16:07 IST

IBM, the world's largest computer services company, aims to increase its share of business in India as banks, retail and small and medium-sized firms spend more on technology in Asia's fourth-largest economy.

IBM's business in India grew 45 per cent on the year in the April-June quarter, the fastest for that period of IBM's emerging market business, as telecoms, banks and services ramped up spending on computer hardware and services to spur expansion in the growing economy.

"India is the fastest-growing market we have got in IBM today," Michael Cannon-Brookes, vice president for business development in China and India, said in an interview at the company's sprawling campus in Bangalore.

"We look at it (as a) high-growth, hyper-growth market. The industry here is going through dramatic transformation. As a result of this, there are just a lot of changes where you really want an innovative approach."

IBM has bagged big deals in telecoms, like one from India's top mobile services firm Bharti Airtel Ltd in August, and Cannon-Brookes said he saw growth across all areas, including retail and healthcare.

"We have a large percentage in small and medium-sized businesses. We are spreading out much more by having offices in other cities, working through business partners and getting down to tier two and tier three cities," he said.

India's export-focused software services companies and multinational firms like IBM are increasingly eyeing outsourcing deals in the local market as banks and government departments step up spending to cut costs and improve their efficiency.

Domestic spending on software and back-office services is expected to rise $7-7.3 billion in the year ending in March 2007, from $6 billion in the previous year, according to the National Association of Software and Service Companies.

Analysts say more computerisation and networking of banks, insurance and government departments will accelerate domestic spending on information technology in India, which has made a name for itself as a centre for outsourced financial services.

Wage hikes

International Business Machines Corp of Armonk, New York, employs 43,000 staff in India - up from 9,000 three years ago - and 7,200 professionals in China, the world's manufacturing hub and IBM's eighth-largest market.

IBM, which derives about half its revenue from information technology consulting and outsourcing, has made India a global delivery hub for software needs and client services.

Cannon-Brookes said IBM's headcount expansion plans in India would not be affected by sharply rising wages in the booming software and back-office services industry, which expects exports to rise 27-30 percent to $29-31 billion in the year to March 2007 as demand for outsourcing remains strong.

Although skilled workers in India are paid less than in the United States and Europe, wages are rising at 12-15 percent a year compared with a typical 2-6 percent in the West, as big players like IBM and Accenture hire by the thousands to catch up and stay competitive.

"We have to manage it (rising salaries), just like anybody else has to manage it. But still, when you look at the cost of the wages compared to the cost of wages in many other countries, you are still getting high value skills at a competitively low cost," Cannon-Brookes said.

In June, IBM announced plans to invest nearly $6 billion in India over three years, underscoring the country's growing importance as a hub for information technology outsourcing and expertise.