While doing comparative analysis of Infosys and Wipro, in the first article of the series, we talked about the revenue distribution of the two companies. We also talked about the difference or similarities in client focus. In this article, our discussion would be focused on different business strategies adopted by the companies.
Business strategies change with time and they should. After all whole business environment keeps changing all the time. This is more evident in the field of technology. True that the Indian software companies are primarily service oriented. However, their ways of servicing the client have been changing in the past. Now this industry is witnessing the era of cloud computing and mobile computing. More clients are relying on services such as Infrastructure-as-a-Service and Software-as-a-Service (SaaS). Before going more into the current business environment and strategies, let us first peep into the history.
In the past, there was a stark difference between the growth strategies followed by these companies.
Companies look for acquisition for various reasons like achieving greater economy of scale, increasing market share, gaining taxation advantage, creating synergies between operations of two entities or for vertical integration. Sometime it is also done for diversification or to expand the business house’s footprint. However, in case of an IT company, the acquisition works a little differently. The acquiring company gets very little tangible assets in the process of acquisition. Rather it gets a foothold in the form of an expanded client base or an entry into a new geographical market. The most important asset that the company acquires is the people asset.
Till recently, IT bellwethers like Infosys and Tata Consultancy Services (TCS) mostly refrained from acquisitions. Lack of right-fit acquisition targets at attractive valuations was the rationale cited by their respective managements.
On the other hand, Wipro followed the much talked about 'string of pearls' acquisition strategy, which is a fairly aggressive acquisition strategy. This was to make acquisitions to plug gaps in its client offerings and ramp up quickly in these areas. Wipro integrated the acquisitions of small companies such as mPower, New Logic, cMango, Saraware, Enabler, Quantech and Infocrossing during 2006-2008. However, the acquisition strategy changed to 'move the meter as a whole' by the new management. Recently, Wipro has acquired the IT related Oil & Gas business of Science Applications International Corp (SAIC). This acquisition is very strategic to the company. It is expected to enhance Wipro's domain capabilities in the upstream area and make it an end-to-end service provider in the Oil & Gas space.
As far as Infosys is concerned, the company has been and is still sitting on a huge cash pile. The management has stated that it is on the lookout for proper acquisition targets. But they have not really made any big ticket acquisitions as of now. The reason - the management has set very stringent criteria. While this is good to some extent as the company has not made any wasteful or value destructive acquisitions, however, it has also lost out on some attractive opportunities which its peers have capitalized upon. Recently, Infosys has said that it is eyeing opportunities in the emerging healthcare space. But then again from a shareholders’ perspective one does not know when this acquisition would happen.
Focus on India
Infosys has always focused on the high margin business. For this, it has concentrated on the business from the developed markets such as the North America and the Europe. And, it has definitely worked well for the company till now. But in the process Infosys has ended up ignoring the emerging market opportunities particularly those from India. On the other hand, Wipro has been catering to domestic market as well. And during the time of slowdown in the developed economies, this focus on India has worked in the favour of Wipro and has helped it in growing its business.
Of late, though Infosys has started focusing on Indian market. But till now its name has not really featured in the big ticket contracts awarded by the Indian government or domestic companies. Its portion of revenues from India still remains quite low.
In the beginning of year 2011, Wipro decided to dismantle its traditional Joint-CEO model. The management has identified four industries as the core momentum verticals. On the other hand, Infosys has completed 30 years of its journey. It is now in the third phase of its growth. The management has set out new visions for the next 30 years.
In the subsequent articles of the series, we would talk about their current business strategies in detail. In addition, we would also discuss the management quality, financial performance and valuations.
Ethical practices help build long lasting relationships, and healthy long-term business relationships are often mutually rewarding. But PersonalFN is of the view that the financial services industry in India seems to have forgotten this.
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