Reentry of IBM into India – A modified strategy

The IT major is working with a host of Indian companies in emerging sectors to enable them to improve efficiency and cut costs — spelling both good business and sound investment for the future.
History has put IBM and Amul in two different worlds. IBM is a key flag bearer of the US in global business. It got thrown out of India in the late 1970s as the last gasp of the Third World desire to rid itself of the neo-colonial yoke. Amul is not just a flag bearer of India competitiveness but an icon of the cooperative movement to boot. Still, Gujarat Cooperative Milk Marketing Federation, which owns the Amul brand, recently outsourced its information technology operations to IBM. This will help Amul become even more competitive as it will get equipped with a state-of-the-art IT system that weaves the automated village milk collection centre and the management information system into a seamless whole.
For well over a decade, Indian software services leaders have taken the world by storm by recording exceptional growth and industry beating margins. But even as they have done this, they have not adequately looked at their own backyard, the domestic market. There, with a minimum of noise, IBM has emerged as the largest player with a 10.8 per cent share of the Indian domestic IT services market in 2008, according to the analyst and IT market research firm Springboard Research.
This, in itself, would not have mattered that much to the Indian players were it not for the fact that the global economy tanked the same year and took the developed world’s IT spending decisions with it. Even more dramatically, the Indian government woke up to the need to sharply up IT spending and UPA II took giant strides to e-enable governance. Suddenly, the Indian market was the growth engine which no one could ignore and there was IBM at the head of the pack.
According to Dataquest, in 2008-09, IBM’s total business grew 19 per cent, whereas those of its competitors like Cisco, Oracle and HP grew by under 5 per cent. If you exclude domestic business process outsourcing, IBM’s top line growth was even more impressive at 36 per cent. This growth took the domestic revenue share (excluding exports) of IBM’s revenue from 42 per cent to 48 per cent. In 2008, IBM’s India business grew the fastest among the BRIC countries.
How has this happened? IBM is fundamentally a different company than what they were a decade ago and have remixed our portfolio to focus on what one would call ‘higher-value’ spaces, including high-end hardware, software and services. It has significantly improved service margins globally over the past five years by automating labor based processes and creating intelligent, software like assets. In India, they have been successful at replicating telecommunications expertise in business model transformation in emerging sectors such as insurance (Reliance Life), FMCG (Cavincare), Infrastructure (Hiranandani) and Pharmaceuticals (Torrent).
IBM’s Indian and global strategy is to move on the two legs of consultancy and systems integration towards high-value enterprise-critical solutions. Along with this has been the strategy to show customers that partnering IBM, using its servers, can cut costs. Seventy per cent of IT expenditure goes in meeting infrastructure maintenance costs. Greater energy efficiency of servers means lower air-conditioning and backup costs.
To this is added the cost-saving achieved by sharing servers as, research shows, 85 per cent of server capacity goes unused. Reducing client and own costs goes hand in hand. Since 1997, IBM has reduced its global data centers, where clients increasingly host their computing and data, from 155 to seven. IBM is still number two in India (behind HP) in server revenue but it is catching up fast and it does not run for the sake of numbers but keeps an eye on how paying the business is. However, it leads in non-x86 Unix-based servers and also in external disc storage.