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January 07, 2008

How mid-tier IT Services cos. are coping

Businessworld has an article on how mid-tier Indian IT Services are attempting to cope with the "great squeeze" by differentiating themselves.
Mumbai-based software firm Hexaware shares more than a few similarities with its peer iGate. Hexaware, like iGate, has established a presence in a number of verticals in order to maximise its competitive advantage. It initially started with a focus in the BFSI verticals, but over a period of time it has unveiled what it calls a multi-niche strategy and has entered into transportation, hospitality and logistics verticals too. Like the bigger companies, Hexaware’s strategy is to expand as quickly as possible through low cost centres globally. Adds Atul Nishar, chairman of Hexaware, “We are working on a $1-billion (Rs 4,000-crore) roadmap, where we envision a larger global footprint with a headcount in excess of 35,000 and we will have delivery centres in South Asia, eastern Europe and North America. We will also launch new verticals or add micro-verticals to existing focus areas.”

...While both iGate and Hexaware have a strategy and have to get their operations aligned to new cost dynamics, Chennai-based helios & matheson (H&M) has neither a strategy nor operational excellence. It is a relatively new entrant into the industry. It went public in 1999 and has been growing through acquisitions, most of them successful, barring Vmoksha, which failed and is now in the courts. H&M has a low PE of just five times for its stock price. The company derives 42 per cent of its revenues from healthcare thanks to its acquisition of Nasdaq listed TACT a few years back. “We may be small but we are on the verge of explosive growth,” says G. K. Murali Krishna, managing director of H&M. “It took Infosys 25 years to reach billion dollars of revenues and less than two years to reach the next billion.” H&M has slightly better operating and net margins at 13.3 per cent and 21.6 per cent compared with iGate, primarily due to its Nasdaq listed subsidiary.

...In an effort to adapt to a difficult business climate, Delhi-based NIIT Technologies has, over the past few years, gone through the process of cutting down its business to just three verticals: insurance, travel and transportation, and government. The decision to focus on verticals was taken because its growth was suffering and it could not compete against the big companies for either talent or business, which is when it decided to focus on a few verticals. “Our focus is on being the best,” says CEO Arvind Thakur. “We can only be the best if we focus on a few verticals and in those niches we can be bigger or equivalent to the global or Indian biggies."

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.