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Babes in the consulting woods?

Infosys' battle to make profits in consulting is a cause for concern in a market where international companies are doing well since last 30 years, writes Venkatesh Ganesh.

business Updated: Apr 25, 2007 02:58 IST

At a time when Indian software companies are eyeing more high-margin consulting business, Infosys Consulting Inc, the Texas-based subsidiary of Infosys, started three years back, recorded a Rs 107.5 crore ($25 million) loss in 2006.

Asia’s largest software exporter, TCS, reported that its global consulting business contributed just 3.4 per cent or Rs 489 crore to its top line for fiscal 2006-07. This 3.4 per cent is up from the 2.9 per cent that TCS’ consulting business contributed for the fiscal 2005-06. Similarly, Wipro by acquiring Nervewire in 2003, for getting into consulting, said that consulting contributed to 1 per cent of its top line for the fiscal 2005-06.

Software majors such as IBM, EDS and Accenture generally have a consulting and services ratio of 60:40. So, does the fact that Infosys Consulting is struggling to make profits and others are still finding their feet a cause for concern in a market that has global consulting firms doing business since the last 30 years?

“We are not worried about others strengths. We play to ours,” Nandan Nilekani, then CEO had told Hindustan Times a few months back on how they are stacked up against competition. Industry analysts agree with his view. “Infosys itself has been showing consistent profits and as of now we are not concerned,” said a Mumbai-based analyst.

“We are still in the investment phase, but if you look at Infosys Consulting and the amount of work that flows down to services related work, then we are on firm ground,” said V Balakrishnan, Infosys CFO, during the recent quarterly results presentation. An indicator of the fact that the company is still in investment mode is that it is hiring senior consultants from global majors like McKinsey. “These consultants come with a premium,” said a senior official from a Bangalore-based company.

Another reason is the amount of work that flows from consulting to the maintenance and system integration work that companies get. “When Accenture does consulting for a Fortune 500 company, it gets some coding work as a part of business reengineering,” said Sid Pai of TPI Associates.

“It would be interesting to note whether Indian companies can achieve success with their type of business model and whether a Fortune company will go to TCS or Infosys for restructuring their business,” said a CEO of a Pune-based mid-sized IT firm.
"Consultancy has been identified as a key business growth area,” said N Chandrasekaran, Head, Global Operations of TCS.

First Published: Apr 25, 2007 02:50 IST