July 2006

Mr. Murthy, Infosys and how India became a IT power house

It was not to long ago North American's viewed India as a place where we send our donation dollars to the needy. Its a bad thought but some of the images of India a few years ago were not pretty. Now it is the place that has the most CMM level 5 companies in the world and its growing well over 8 %. This has contributed to a great market for Canadians where our natural resources and our high end services are in demand.

We have to respect Indians and their government policies and possibly look at how to apply their policies to our emerging industries in Canada.

During my time at the Multimedia Super Corridor I had the chance to see Mr. Murthy speak. In 2002 the whole offshore outsourcing industry was still quite new and I did not know who he really was. He is one of those people that have a quiet confidence and their mere presence puts you in awe. The man is bursting at the seams with knowledge.

Infosys is an India company and it is the biggest of the 4-5 companies that is the cornerstone of the Indian IT outsourcing industry.

The rise of Infosys to a multibillion dollar company

Some of our clients still have not heard of Infosys, for those that need a run down on the facts here they are:

1. Founded in Pune, India in 1981 by Narayana Murthy and six others

2. Start up capital 250 USD (short on capital long on hope)

3. 52,715 employees March 31st 2006

4. Revenue of 2.15 billion USD March 31st 2006

5. Revenue of 121 million USD March 31st 1999

6. Market Capitalization of 22.33 billion USD May 4th, 2006

7. Infosys is in the business of IT Outsourcing and Business Process Outsourcing

8. First Indian company to be listed on the NASDAQ (NASDAQ:INFY)

9. Clients include Boeing, Airbus, Dell, Toshiba and many others

How did India become a world IT outsourcing center?

The Government of India was largely socialist in nature in the 1980s, there were many rules, restrictions, and regulations to comply with. Some of you may have heard that the cost to import a computer into India in the 1980's was more trouble than it was worth. The Indian government like many other Asia governments was trying to protect its domestic market from North American and European companies. This also happened in China with its restrictions in the 80s and 90s. It seems now both countries have embraced globalization and the US is trying to figure out how to compete--in short the tables have been turned.

If we were going to pinpoint an exact date it would have to be somewhere around 1991. Mr. Murthy identifies 4 changes that this liberalization policy did.

1. "One, as I said, it reduced friction to business or enhanced the velocity of business. That is, we didn't need to go to Delhi any more to get any licenses. In fact, ever since 1991, there is not a single instance when I went to Delhi for any license for any business of Infosys. "

2. "Number two, the government abolished the Office of Control of Capital Issues. This officer was responsible for deciding the premium at which we could offer our shares at the time [of] the IPO -- that is, what premium Infosys would get when it offered its shares in the market. Generally, this officer did not give too much of a premium; equity was not seen as a viable financing option. The government abolished the office and then said it is the company and the investment bankers who decide at what price they will offer shares to the public as part of the IPO. Equity became a very viable financing option. "

3. "The third thing that the government did was before 1991 there was no convertibility in the country. We had to get transaction by transaction approved by the Federal Bank, or from the Bank of India. If I wanted to travel, I had to get permission from some officer at this bank, and that was extremely difficult. There was very little possibility of Indian companies establishing sales offices outside of India, [of] Indian companies starting big sales promotion campaigns outside of India. All those things were removed. Today it is absolutely easy to do any of these things."

4."And the fourth thing, the most important that the government did, was it allowed 100 percent equity for foreign companies in high-tech areas, and that brought the finest multinationals to India -- the Microsofts of the world, the General Electrics, the Citibanks, the Oracles, the Suns. The reason was, one, it provided the latest technology to Indian companies. Second, it also created tremendous competition by a very important resource, which is human resources, and because there was tremendous competition for human resources, companies like Infosys realized that unless we compete with these multinationals in attracting and retaining those resources, we will disappear like dew on a sunny morning."