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News Updates - 30 October 2000 Passage to India - Forbes magazine India's Wipro NYSE Debut - Dow Jones newswires Passage To India N ortel Networks has been sending such mundane software work as maintenance and testing to India for eight years. But the Canadian telecom giant is getting serious with its Indian partners. Last year Bangalore's Infosys Technologies joined Nortel in one of its key projects: development of its wireless systems. Nortel even shipped $10 million worth of telecom gear to help Infosys complete the job. "We treat them as partners, not as subcontractors," says Marc Granic, Nortel's managing director for international research and development.The passage to India of North American software development that began in the mid-1990s shows no sign of losing steam. India's exports of software services have risen eightfold since 1995 to $6 billion this year. By 2008 the figure could leap to $50 billion, estimates McKinsey & Co. But the nature of the software trade is changing dramatically. Once outsourcing to India was all about saving money on such drudge work as debugging code and Year-2000 testing; now companies like Infosys are winning hugely complex and valuable projects that once went to such U.S. stalwarts as IBM, EDS and Andersen Consulting. A significant factor behind the shift to India is the critical shortage of tech workers in the U.S. Another distinct possibility: Programmers in Bangalore are simply better. Nortel Networks has 1,300 developers in India. "In no other place in the world can we find so many qualified people," says Granic. He has 324 Infosys developers on contract; the total is expected to rise to 650 by the end of next year. At first glance, India seems an unlikely place to find technical excellence. Half the population is illiterate, the phone lines and electricity supply are unreliable, and the roads and airports are decrepit. With a population of 1 billion, India has only 1.6 million Internet subscribers and fewer than 30 million fixed phone lines. A corrupt and incompetent government chronically runs yawning budget deficits, starving the private sector of capital. But one thing India has in abundance is skilled human capital--after the U.S., the largest pool of English-speaking scientists and engineers in the world. Indians have demonstrated an enormous facility for software, a penchant that Azim Premji, the billionaire chairman of Wipro, another software developer and India's most valuable listed company, attributes to "the basic mathematical inclination of the Indian mind." (After all, Indians invented the concepts of zero and negative numbers 1,300 years ago.) Information technology attracts the best brains in the country. "All middle-class Indian mothers want their kids to be software engineers," quips T.V. Mohandas Pai, the senior vice president of finance at Infosys. Infosys is one of the biggest magnets in the talent pool and one of the earliest to move into more sophisticated software work. It services hundreds of global firms, including Goldman Sachs, Visa and DHL. Infosys has developed switching software for Cisco, a factory management system for Nestle and an inventory tracking application for Nordstrom. Since listing on the Bombay stock exchange in 1993, Infosys' sales and earnings have compounded at more than 70% a year. This year Infosys, which issued ADRs on Nasdaq last year, should earn $112 million aftertax on revenues of $360 million. Its market capitalization of $17.5 billion tops that of Computer Sciences and is more than twice the market cap of Sapient, Scient or Cambridge Technology Partners. N.R. Narayana Murthy and six software engineers founded Infosys in 1981 with an investment of $250. A schoolteacher's son, the slightly built, soft-spoken Murthy, 54, graduated from the elite Indian Institute of Technology. Not surprisingly, he is a big believer in India's coming dominance of the software services business. "Our costs are a fraction of U.S. costs, while our quality and productivity are equal to or better than what's possible in the U.S.," he asserts. "India will become the country of choice. It's already starting to happen." Voted the most admired company in the country by Economic Times and other Indian media, Infosys has no trouble attracting top talent. Last year it received 183,000 job applications and offered positions to fewer than 3,000 people. Only a third of the applicants pass the harsh written exams, which test math, logic and analytic reasoning. All new employees undergo intensive 14-week training. Starting salaries are $400 to $500 a month, in line with typical corporate salaries. But like U.S. tech firms, Infosys lays on the perks. Thanks to stock options, more than 200 employees are dollar millionaires; Murthy's 8% stake is worth more than $1 billion. The Infosys campus, on the outskirts of dust-choked Bangalore, is an oasis of manicured green lawns, swimming pools, gyms and tennis courts. There is even a Domino's pizzeria. To compensate for deficient public utilities, the company operates its own fleet of buses and has its own satellite links, power generators and water recycling plants. The 10% employee attrition rate is a third of the industry average. Murthy says that one of the keys to India's success in software development is its blend of whip-cracking efficiency and fanatic attention to detail. The Carnegie Mellon Software Engineering Institute in Pittsburgh, Pennsylvania, has a rating system for developers, called the Capability Maturity Model, that takes into account ability to produce quality software on time and on budget. India boasts 15 of the 23 developers worldwide that are reported to have attained the highest grade, CMM level 5. IBM is 5; Xerox, level 3. Infosys, a level 5 like its local competitors Wipro and Tata Consultancy Services, delivers more than 90% of projects on time, compared with a U.S. average of 60% to 65%. The Indians even sell their remoteness as a virtue. Bangalore is 9 to 12 hours ahead of the U.S. Aetna Healthcare's chief information officer, John Brighton, says that one reason he farms work out to India and not Mexico is the time gap. Infosys is helping in the strategic planning of Aetna's Internet-based health network. "When we sleep, India works," says Brighton. Murthy is pushing into such higher value technology services as e-business consulting, design and implementation. Internet services have vaulted from 2% to 29% of revenues over the last 18 months. Infosys developed Dell Computer Japan's website and is designing the electronic investment service site in Europe for Franklin Templeton's mutual fund operation. As a result of the new work, revenue per information-technology professional has nearly doubled in four years to $81,000. Murthy says that he has achieved his patriotic goal of showing that "it's possible to live in this country and create wealth legally and ethically." But his corporate mission is more ambitious: "Infosys should become the first choice in unaided mind recall of any CIO or CEO." The richly priced stock says that it's only a short while before this company joins the ranks of IBM, EDS and Andersen Consulting. If
It Ain't Broke . . . It's not hard to see why. For decades India's bureaucracy has slowed economic development; now it might unleash its talent for obfuscation on the country's most promising industry. India's software exports will rise from over $5 billion in March to more than $50 billion by 2008, says a study by India's National Association of Software & Service Companies and McKinsey & Co. So if it ain't broke, why fix it? Even the most successful industry needs a helping hand from the government, reckons Mahajan, 52, an eloquent member of the ruling Bharatiya Janata Party. "I'm not here to regulate the industry, I'm here as a facilitator. I'm here with the red carpet, not the red tape," he says. After pooh-poohing his appointment, India's software guys are changing their minds about Mahajan. They have applauded two steps that he's taken. He successfully shepherded through Parliament the Information Technology Bill, establishing a legal framework for the IT sector. It recognizes electronically filed documents and digital signatures as legally binding, and e-mailed contracts as legal and admissible in a court of law. And India is one of the few countries to introduce laws to curb potential cybercrimes. His second achievement was to help persuade the government to continue the existing tax break on software exports for an additional ten years--a concession that will remain in force until 2010. As part of the package of measures, the government agreed to tax employee stock options only when exercised and at a 10% rate on the capital gain. (In the U.S. the tax rate is 20%.) That's two cheers for Mahajan. "Our original fears [of over-regulation] have certainly been allayed, but it is too early to declare victory. If the IT ministry veers off course, the initial successes will soon be forgotten,"says Vivek Paul, the CEO of Bangalore-based Wipro Technologies. But he continues, "If you look at the challenges ahead, starting with how this whole Internet wave is changing the way business is done, that requires a new regulatory framework. The reality is that the IT ministry can act as a central tool." Suresh Bansal, the chairman of Melstar Information Technologies in Mumbai, agrees that the IT ministry can help to promote the industry in New Delhi. And Ramalinga Raju, the chairman of Satyam Infoway, applauds the creation of the ministry: "It recognizes the fact that the Indian IT industry has reached a maturity level, particularly as IT gains increasing global acceptance for its technological capability and human-resource quality." Mahajan has successfully lobbied the much larger Ministry of Communications, regarded by many as the narrowest bottleneck in the rapid development of the IT industry in India. Following the first national conference of IT ministers in July, which was attended by Ram Vilas Paswan, the communications minister, the domestic long-distance telephone service has been opened up to the private sector. Saurabh Srivastava, the chairman of IIS Infotech, believes that addressing the telecom infrastructure and the high cost of Internet access are the key issues for the IT ministry: "High bandwidth at low cost is critical if we are to really gain from the Internet economy." Mahajan, a physics major educated at the Universities of Pune and Aruangabad, wants to double India's output of IT graduates to 200,000 a year, but he admits that his ministry has no budget of its own to further that objective. As a minnow among big-spending ministries, it may have little influence on where education money is spent. But it does have enough to pay for 700 civil servants, who must now think up reasons for their existence. For Mahajan, the easy part is over, now that the IT bill and the tax breaks have been passed by Parliament. He's left with the role of India's IT salesman. "We are no more a country of snake charmers; we're a country of mouse users," he intones. "We are no more a country of naked Sadhus, we are a country of the best computer scientists in the world." India's
Wipro NYSE Debut First Of Many Deals NEW YORK -(Dow Jones)- Indian information technology service company Wipro Limited (WIT) said Thursday its listing of 2.7 million American Depositary Receipts on the New York Stock Exchange may be a starting point for more offerings to come. The listing raised about $112 million, much of which will be allocated towards future acquisitions. The company is looking to take on U.S.-based software service companies in the Internet and telecommunications space with access to customers and pricing power. And if it finds something it wants but doesn't have sufficient capital, Wipro is ready to tap the capital markets again. "We have looked for the right target. If it's bigger than the amount we've raised right now, then we'll go back to the secondary market," said Vice Chairman Vivek Paul. The ADRs were priced at $41.38, on par with Wipro's rupee-denominated shares trading in India. In midday trade, the new editions are $2.63 higher at $44, on 1.37 million shares swapped. A little less than 16% of the company has now been floated to some 60,000 shareholders, with the remainder held by Chairman Azim Premji. The ADR issuance represents 1.2% of Wipro's total stock value, the company said. Wipro joins four other Indian securities listed on the Big Board. To celebrate, Premji rang the opening bell and is scheduled to also ring the closing bell on what has thus far been a much-needed day of reprieve on the Exchange. Triple-digit gains in the Dow Jones Industrial Average Thursday have done much to calm market volatility. "We certainly seem to have brought luck to the Exchange," Premji joked. In return, the Exchange has given Wipro access to a greater global audience. Large U.S. financial institutions, European investors, and participants from Asian markets outside of India bought into the offering in almost equal proportions, the company said. Wipro's customers already span four continents, and include several Fortune 500 companies. Morgan Stanley Dean Witter, Credit Suisse First Boston, and Banc of America Securities co-managed the deal.
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