Paran Balakrishnan: Why the smart money is on India

IBM chief Sam Palmisano couldn't have delivered his message more clearly.

Standing in the grounds of a maharaja's palace in Bangalore, facing 10,000 employees and a group of 50 analysts flown in from New York, Palmisano announced that IBM would be spending a US$6 billion ($9.8 billion) in the next three years to expand business in India. That will be in addition to the US$2 billion it has spent in the past two years.

But the impact of Palmisano's mega-spending announcement - made with the President of India, A.P.J. Abdul Kalam, sitting next to him - was lessened ever so slightly by another US high-tech behemoth which plunked its money on the table. Only one day earlier, EDS had signed and sealed a deal to buy Indian tech company Mphasis BFL for US$380 million. By year-end EDS may have up to 20,000 employees in India compared to its current 3000.

If imitation is the best form of flattery, India's software services companies must be feeling pretty good.

About three years ago the best and brightest from the American tech sector decided they couldn't do without a muscular presence in India. And in the past few months they've been stepping up their India operations faster than ever.

"When all these companies go for a presentation they are asked about their Indian presence. They are crippled without it," says Raman Roy, the former chief of Indian business process outsourcing giant Spectramind, who is now heading his fourth start-up firm.

Even financial sharpshooters like Kravis Kohlberg and Roberts, and , Carlyle and Blackstone have moved into the Indian tech arena which shows they have high hopes for growth.

In April, Kravis Kohlberg and Roberts beat the other private funds to the punch by snapping up the Indian software operations of Singapore-based tech company Flextronics International. The price tag was US$900 million but analysts gave the deal the thumbs up because the Indian tech sector is growing so quickly.

The best known names in the world of high-technology are putting their money where their mouth is when it comes to India - and not just IBM.

Intel said in December that it would spend about US$1 billion in the next five years on research and development and to buy up promising small companies. Similarly, Cisco has said it will spend US$1 billion in the next three years and views India as one of its top markets in coming years. Meanwhile storage company EMC has budgeted US$500 million in the next three years for its India operations.

But IBM is in front when it comes to building up its presence in India.

Two years ago it made an offer that could not be refused to Daksh, one of India's biggest Indian business process outsourcing companies. The price has never been revealed but IBM is said to have paid between US$150 million and US$200 million for Daksh. The valuation was slightly on the low side but Daksh wasn't in a position to protest because IBM had just signed a deal with its biggest client that could have resulted in it losing heavily.

IBM has been moving at warp speed to expand Daksh and its other businesses in India. At the end of 2003 it had about 9000 employees in India. Today that has zoomed to 43,000, making it one of the largest high-tech employers in the country behind only two or three local giants. Daksh itself had about 6,000 call centre employees when it was taken over by IBM in April 2004. Now that's up to 20,000 as IBM routes more of its calls to Daksh.

The fact is that all the tech companies are hiring at almost unimaginable speeds.

Take global consulting firm Accenture which had about 4300 staff in India in December 2003. Today it has more than 17,500 employees spread over five Indian cities. Its newest glittering office block in Pune, western India, has room for about 1600 more.

Similarly, Cap Gemini, one of Europe's top consulting and outsourcing companies, announced last month that it would be doubling headcount in the next year from 5000 to 10,000.

It should be underlined that the foreigners aren't the only ones hoovering up all the available talent in the market almost as soon as they step from their college gates. The top Indian firms, too, are hiring.

Take Tata Consultancy Services, the biggest of them all, which recently announced it would hire about 30,000 new recruits in the coming year, a huge jump from its current strength of 62,000.

The second largest Indian company, Infosys, broke a record of sorts when 2000 new staff reported for training on one day alone in June. Infosys has built a new training centre in Mysore that can handle 4500 people at once.

Infosys, which currently has 53,000 employees, says it will hire about 25,000 people this year.

But what work are the multinational software giants sending down the phone lines to India? To start with it's usually grubby grunt work that can be easily parcelled out to any part of the world where there's enough cheap, educated labour.

But even if it starts that way, the smarter companies often end up upgrading their capabilities quite quickly. Many Indian call centres, for instance, began by handling credit card inquiries and then moved to building sophisticated financial models. And IBM has opened top-level research facilities in India that match the best it has anywhere in the world.

The multinationals are also keeping one watchful eye on the Indian market.

They've figured that India is a technology market by itself and everyone believes it's poised for takeoff. In fact, some Indian firms have faced criticism from analysts for neglecting their home market.

Of course, there is the dilemma faced by everyone who's in the hiring game that it's getting tougher to find the talent on the ground. Many firms have been forced to raise starting salaries in the past year and even that doesn't always help when you are bulk hiring as most IT companies do.

So far, however, though the HR managers are grumbling about the quality of talent, that doesn't seem to be stopping the great hiring spree.

Many high-tech analysts reckon that the season of takeovers is about to begin and that even the largest Indian software giants will be fair game.

There's even speculation that some part of IBM's $6-billion budget will be used for acquisitions. And, if that happens, the Indian high-tech story will begin an entirely new chapter.

* Paran Balakrishnan is an associate editor of the Telegraph, Kolkata.