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Is Infy regressing to commodity code?

Friday the 13th turned out to be a bad day for Infosys lovers, when the darling software company shocked investors with a below-expectation result, a weak growth outlook and then, a statement from CEO S.D. Shibulal, giving his first full-year guidance in the job, that volatility was the "new normal." N Madhavan writes.

india Updated: Apr 22, 2012 20:44 IST
N Madhavan

Friday the 13th turned out to be a bad day for Infosys lovers, when the darling software company shocked investors with a below-expectation result, a weak growth outlook and then, a statement from CEO S.D. Shibulal, giving his first full-year guidance in the job, that volatility was the "new normal."

Big questions arise when a bellwether behaves like this. Does this spell trouble for the Indian IT sector as a whole? Surprising as it is, Infosys forecast a growth of 8 to 10% in revenues for 2012/13 while the National Association of Software and Service Companies (Nasscom) stuck to its own annual revenue growth forecast of 11 to 14%.

Infosys was counting itself in the league of high-end IT service companies including multinationals such as IBM (which is now more of a service provider than a computer maker). However, days after Infosys gave its weak guidance, IBM reported fairly impressive results and unveiled a growth outlook that seemed more positive.

And Nasscom's president Som Mittal observed that problems faced by Infosys may be peculiar to the company - something a traditional Infosys optimist like me would find quite unbelieveable.

So, what gives?

However, the company also announced it planned to hire at least 35,000 new employees in the fiscal year, even as it announced a salary freeze for existing employees. Some clues lie there.

To me, it seems that the weak growth guidance was a tactical measure by Infosys to contain costs while it was still possible, because the European economy is still in trouble while the US, its main market, has not recovered properly. Infosys now competes with the likes of Accenture and IBM for both business and talent. It might make more sense for it to give raises later. A salary freeze is more feasible now than later.

Also, Shibulal has just started off and typically, a CEO would rather start conservatively and then progressively perform better to impress markets.

My view therefore, is that Infosys is stooping to conquer. But it is clear that the cheaper Indian labour that it started out with is no longer that cheap while "mainstreaming of offshore" work to India by multinationals having set up huge operations in the country leaves it weaker as a competitor in the market for talent. The new generation of Indian IT workers are more demanding.

But a high-margin consulting business set up by Infosys to counter the likes of Accenture in the Western markets is still to gather momentum.

In this backdrop, a high hiring number of 35,000 would only mean that Infosys is now focusing on the volume game of getting relatively cheaper programmers (especially freshers) in a low-margin game. This we could call the "code as commodity" - something it started out with more than two decades ago.