India Now a $3-B Market for Big Blue

Half of this comes from local market; Co also controls half of India's outsourcing biz

IBM India's revenues crossed $3 billion ( 13,500 crore) in the year ended March, helped by contracts from a number of companies looking to improve their performance through better use of technology. Big Blue, a name IBM acquired from its bluepainted mainframe computers of the 60s, now controls over half of the outsourcing business in a market that is home to the world's fastest-growing tech firms. 

IBM does not comment on revenues from specific country markets like India, but at least six people, including experts and company insiders, confirmed the company's revenues from India touched $3 billion during the year ended March 2011. Nearly half of this is from India's domestic market, where IBM handles computer hardware, software and services functions of customers such as Bharti Airtel. Some revenues also come from developing solutions for government customers such as Indian Railways, which took the company's help for developing a crew management system last year. IBM Now Looking Beyond Telecom Sector 
The remaining $1.5 billion is earned from exports and from over 1,500 of IBM's top customers, including JPMorgan and others. Over the past 19 years, Big Blue has been slowly and quietly preparing to control India's lucrative IT business in the backyard of the country's top tech firms that started by writing software codes for helping overseas customers manage the millennium bug during the 90s. Now, as Infosys and Cognizant shift their focus to India's nearly $20-billion IT market, IBM's shadow is already looming large. "IBM Japan, for instance, is as good as any other Japanese tech company. Ditto in India—their undying focus on the markets they are present is a lesson," says a senior executive at one of the Indian tech firms. Unlike many other multinational tech firms like HP, CSC, Capgemini, which started their operations to develop a staff base to compete with low-cost Indian rivals, IBM looked at India as an important part of its 'emerging markets' growth story in the years to come. With nearly 120,000 employees, around one-fourth of its global workforce, IBM is now one of the top five tech firms in the country in overall revenues, behind TCS, Infosys, Wipro, Cognizant and HCL. However, none of these rivals has more than 10% of their business from Indian customers. 
"During recession, companies like Infosys realised that they have allowed an IBM to grow ahead in their own backyard," says the CEO of one of the tech firms now competing with IBM for local business. Shanker Annaswamy, managing director of IBM India, said, "In 2005, our chairman gave a challenge for us to become the number one in the services market here, and we have done that." 
"Our early efforts are paying off now," he added. 
Outsourcing contracts with customers such as Bharti Airtel and Indian Railways are now worth around $1.5 billion, higher than those of any Indian firm, including TCS. It's been a long, slow burn for IBM in India—It withdrew from the country in 1977 after the government passed a ruling that multinationals would have to give up some stake in their India units, and was one of the earliest to come back in 1992 when reforms started to take shape. 
Now, the company is fighting for large government outsourcing contracts against Indian rivals TCS, Infosys and Wipro. "In 1992, we entered India for the domestic market opportunity, which is what differentiates us from the others. And then we said if we can also do global delivery, it's good, but we did not come for the labour cost arbitrage," Jeby Cherian, director, strategy, IBM India South Asia, said. Years later, in 2006, the company announced an investment of $6 billion in India. Indian government departments and public sector units are going to spend the most on IT this year. The biggest driver for higher government spending on IT and related areas is India's UID project, which according to CLSA Research, will lead to $10 billion worth of investments in IT consulting, system integration, and computer hardware over the next five to six years. CLSA sees a $1-billion business opportunity for consultants in the first five years and a need to raise manpower by 15% for their services. Some 18,000 systems specialists and programmers will drive a $2.4-billion pie for integration of UID into existing software systems. 
However, IBM now has to find ways of growing its India business beyond large outsourcing deals from phone firms. "There's no Bharti-like deal in sight and opportunity to bundle computer hardware with outsourcing is not there in other sectors," says a senior executive at a company that competes with IBM. 
In some ways, IBM is still waiting for a 'magic' to happen similar to its success in India's telecom market, in sectors of banking, retail and healthcare. "In the first wave of banking and financial services, we did not participate; in the last 18 months, there has been a lot of focus and activity. SBI is one such example. Now banks are transforming beyond core banking," Vanitha Narayanan, managing partner, global business services (GBS), IBM India and South Asia, said. "In telecom, the deals are smaller but just as overarching' banking and telecom are IT-led businesses. The volume has increased, the size and scope are different," she added. 
On its part, IBM has already started signing smaller contracts with customers such as Tata Sky, Amul and HPCL that can potentially become multi-million-dollar deals over many years. For instance, the HPCL contract worth around $2.2 million, for implementing radio frequency identification device, will help the petroleum company streamline its processes of bottling, supplying and tracking over 500,000 LPG cylinders in the first phase. 
Coming out of recession, all IBM India employees are set to receive a $1,000 stock bonus each before June 16, the day the Big Blue celebrates its 100 years of existence, in a move that will force other multinational and Indian tech firms to dole out more incentives to check attrition. 
According to market intelligence firm IDC, the world's largest technology company had revenues of almost Rs 12,388 crore, with a headcount of 75,000, in the year ended March 31, 2010, more than double of what it had in FY06—revenues of . 5,412 crore, with a headcount of 55,000. IBM has drawn out a 2015 road map where it has divided its business into two markets—major markets comprising developed economies like the US, and growth markets comprising 140 countries, including India. IBM's smarter planet involves working with the private and public sector on large, complex problems like plugging water wastage or making the web more accessible to people who cannot read or write. For instance, the company is working on voice-based web to help illiterate people get jobs. The company is doing a pilot project on this with the government of Karnataka.