Source: economictimes.indiatimes.com

Infosys Technologies is scanning the markets of Europe and Japan for acquisitions in the price band of $200-$300 million to energise its non-linear business strategy as well as to expand its geographic reach.

“We are looking at acquiring companies in Germany, France and Japan. These markets have started opening up and we are targeting companies engaged in consulting, BPO, packaged implementation services or IP-based firms as it will help us move up the value-chain considerably,” said Infosys CFO V Balakrishnan.

The deal size will be in the range of $200 million to $300 million. “It will be difficult to give a time frame for an acquisition as it is an on-going process. The effort is to find the strategic fit that is in line with our non-linear growth strategy,” he told ET.

India’s second largest software exporter has already churned out a roadmap for non-linear growth.

Unlike the traditional linear business model, where the revenue is effort-based (more the number of people working, more the revenue), the non-linear business model is based on outcome.

So, with high-value services, the companies can demand a premium from its clients.

“It is not feasible for companies like us with about 88,000 employees to continue to bet on linear business model. Shortage of talent and rising cost of labour are other adverse effects of this kind of a business model.

Currently, we focus on packaged implementation related to SAP and Oracle, where the margins are higher. Besides, consulting and IP-based services are other areas, where the services can be offered at a premium.

An acquisition in these areas will help us achieve higher growth momentum,” said Mr Balakrishnan.

At present, consulting contributes about 5% of the company’s revenue while package implementation accounts for about 25%. “Application, development and maintenance (ADM) is still our largest services segment.

However, efforts are on to move up the value chain and decrease our dependence on headcount. We believe adoption of non-linear growth model is a long term strategy,” he said.

According to an analyst, many companies are adopting inorganic growth strategy to move up the value chain. With $2 billion cash and cash equivalents, funding an acquisition is not an issue for Infosys.

Considering that an Indian IT services company spends about 50% of its revenue on employees, it will not be feasible for them to add head count in the wake of a rising rupee and an expected slowdown in the US.

Consulting, package implementation and IP can help a company to go up the value-chain independent of people addition, he said.

Last year, Infosys had taken over Philips’ finance and administration business process outsourcing (BPO) centres spread across India, Poland and Thailand for $28 million.

In 2003, it had acquired Expert Information Services in Australia for $22.9 million.

Offshore outsourcing has emerged as a popular business practice in this global era. Organizations across the world look at outsourcing as a way to save costs and resources. Most of these organizations from the western side give India top priority in their off shoring consultation, as India is the leader in outsourcing.

The popularity of outsourcing is growing rapidly and most of the companies have chosen this outsourcing path. India is definitely a world leader in the outsourcing industry. Its IT dominance has reached foreign shores now. Indian government deserves appreciation for having supported IT with focus on the education system, prioritizing math, sciences, and the information technology.

Software development demands high technology skills, talented and dedicated programmers. . Offshore development and offshore programming is the best way of doing software development in the developing countries.

India is known to provide high quality services. For web and software development, offshore developers use proven methodologies to provide quality software solutions for the clients. The technologies are used to innovate and enhance the entire customer experience.

India allows you to concentrate on the core competencies of the company that are profit-generating, those which contributes in increasing your revenue, while your service provider will take care of the non-core and the support functions.

Outsourcing to places like India proves to be beneficial because of its cheap labour and good talent. Outsourcing also helps various IT professionals to earn a considerable amount of money, while they remain in the comforts of their homes.

Hence, it is observed that outsourcing to India and other developing countries is profitable to both the provider and the client.