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Monday, August 13, 2007

Buffet's list of pro-bubbles

Here’s more to advance the smugness of Indian IT vendors that refuse to tame their margin expectations (25% plus) even in the face of stiff competition in the home turf by global giants like Accenture, IBM, EDS and the like.

Standard and Poor's, one of the world's biggest investment services providers that compiles a list of stocks meeting the legendary Warren Buffet's appetite twice a year, has named the three of the biggest names in Indian IT space (Infosys, Satyam and WIPRO) in the latest model portfolio.

I am afraid this will further India’s already bloated IT illusion. Content with the growth achieved thro cost arbitrage, India's IT vendors are loath to mature beyond BPO, ADM and other low end service capabilities. I don’t see them investing significantly in R&D (and that explains the high margins) like the global majors do, that progressively helped an IBM almost regularly gross $90 b in revenues. In contrast, Indian vendors that notch up $3b in revenues with over 70,000 employees is hardly sustainable since this model is already creaking because of wage escalation, higher visa costs and attrition in India. With less than 3% revenues from consulting / product based IP, it’s time Indian vendors begin to worry.

I will repeat. Unless India’s IT vendors make meaningful dents in diverse high-end fields like system integration, data center management, remote architecture support, process automation coupled with product innovations that stun the markets with their utilities and features, they stand no chance. Focusing on long overlooked domestic markets is another strategy that could work. Making it to Buffet’s list of probables (pro-bubbles?) can wait, for good reason.



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