BY WILLIAM FISHER
Perhaps Walmart’s $16 billion acquisition of India’s online shopping leader Flipkart this summer was the last straw. Soon after the massive deal was signed, journalists got a look at a draft proposal for a new e-commerce policy from the central government. Suddenly India seemed prepared to follow China’s playbook: Measures that appeared to be copied straight from Beijing included closing loopholes permitting foreign ownership and requiring firms to store Indian consumer data in country and make it accessible to the government. All this and more, the proposal asserted, is needed to “level the playing field,” “encourage domestic innovation,” and give India’s tech companies an opportunity to flourish.
According to Kleiner Perkins’s 2018 report on internet trends, nine of the world’s top 20 tech companies are based in China. That country also boasts 76 “unicorns”—private companies, mostly in tech, with a valuation greater than $1 billion. India is home to just 14, most of them funded with U.S. and Chinese venture capital money that flowed into the country in the wake of China’s tech boom. It has always been puzzling that India—a petri dish for both entrepreneurship and technology talent—never spawned its own consumer tech giant like Alibaba or Tencent.
Many blame brain drain, as India’s top software developers often end up working—and driving tech growth—in the United States. Others cite the appeal of traditional, less risky domestic paths to wealth creation. Yet those same factors haven’t hampered China. Not surprisingly, then, observers increasingly point to India’s open market for consumer technology as the culprit. Indeed, the country is the largest market for both Facebook and Google; what would India’s consumer tech sector look like today if the government had insisted on homegrown solutions for social media and search a decade ago?
Yet tech in India has already flourished in its own way. The country’s consumer tech unicorns may be limited to a handful of online shopping platforms and indigenous avatars of Grubhub, PayPal, and Uber. However, as the Indian economy continues to rise—and the rupee continues to fall—it’s an opportune moment to contemplate the lot of India’s “tech giants 1.0.”
Or rather its sleeping tech giants, the so-called Big Five: Cognizant, HCL Technologies, Infosys, Tata Consultancy Services, and Wipro. Unlike the consumer-facing tech powerhouses of the United States or China, these business-to-business titans are not household names. Yet if you’re the chief technology officer at any decent-sized company, you’ve probably encountered at least one of them in your career.
Tata Consultancy Services, the biggest of the five, is the largest private sector employer in India and has just become its most valuable company. The NASDAQ-listed Cognizant has been a Fortune 500 company since 2011. Infosys, HCL, and Wipro are each ranked among the top 20 public companies in India by market capitalization. Collectively, they employ well over a million people around the world. And they made up half of the top 10 companies receiving U.S. H-1B specialist worker visas in 2017, garnering more than Amazon, Microsoft, Google, Facebook, and Apple combined.
While these companies have long played supporting roles in both the global tech ecosystem and the international political economy, they punch well below their weight in terms of meaningful impact. As “systems integrators” (i.e., providers of technological solutions without using proprietary technology), they share the same business model: global delivery of services developed with less costly Indian research and development.
Their mergers and acquisitions activity is generally ad hoc: Rather than pursue game-changing acquisitions, India’s Big Five tend to acquire midsize platforms and business solutions to fill gaps in their mixed-bag portfolio of offerings. Providing largely undifferentiated services, these companies are trapped on the tech vendor hamster wheel—competing on price for the business of automating workflows and offshoring back-office functions, with labor cost arbitrage as their greatest competitive advantage. It has been a zero-sum game.
Nevertheless, their measured success is proof that they indeed create value and fill a critical need for multiple industries around the world. All five have pivoted away from old-school engineering services that support legacy businesses to the digital transformation of global companies. Now, with the rupee down 13 percent year to date, and with the longer-term prospect of a weaker currency, they have an opportunity to leverage their deep talent pools and global presence into a genuine leadership role in the tech world.
The rupee has been the worst-performing major currency this year. But it’s languishing thanks to domestic energy needs and a go-slow approach from the Reserve Bank of India, not because of any underlying macroeconomic weakness in India. That’s one reason why the Big Five could well have their moment. In the second quarter of 2018, the same period that the rupee fell, India’s GDP grew by 8.2 percent, its greatest quarterly growth in two years, outpacing expectations.
India has retained its status as the world’s fastest-growing economy, principally due to high domestic consumption in the form of consumer spending and manufacturing. Likewise, the country’s human capital (most notably its accomplished and highly trained tech workforce forged in part through experience with multinational outsourcing) represents a sustainable competitive advantage for the Big Five, as well as an important force in India’s long-term growth. As U.S. visa restrictions continue to tighten, India’s top tech talent will more keenly pursue domestic opportunities.
One executive at a Big Five company talked about how a strong U.S. economy has benefitted the entire peer group, providing them with full project pipelines that will take them through the next 12 months and beyond with strong quarter-on-quarter growth. With the wind from a weaker rupee in their sails, India’s tech giants should also seize the opportunity to overcome their historic myopia and look beyond their usual quarterly revenue horizons. (In spite of running notoriously tight ships, their response to a bad quarter has reflexively been further cost cutting and increased employee utilization.)
All of them have substantial cash on their balance sheets in the form of U.S. dollars and could use it to pursue acquisitions and invest in capabilities that would give them truly strategic advantages, such as artificial intelligence, augmented and virtual reality, and edge computing—frontier tech practices that command a price premium in the business-to-business market. Likewise, they should break with their usual parsimony and invest more heavily in marketing to close the yawning brand equity gap with competitors such as Accenture and IBM.
In spite of their essential similarity, there are certainly some salient differences among these five companies. Tata Consultancy Services, the largest, has grown organically around an innovative distributed corporate structure, using its cash for share buybacks. Cognizant, whose primary listing is in the United States, has spent significantly more in sales and marketing than its peers, yielding lower margins but fueling faster growth. Infosys has invested in new platforms and services, and HCL has aggressively pursued core IT infrastructure deals. Wipro has focused on design thinking and is actively pursuing the next generation of promising tech start-ups. Yet each of these divergent paths to growth has been incremental rather than transformational.
Of course, India’s Big Five are business-to-business service providers. Their project-based work lacks the advantage of network effects, and they will never enjoy the scope and scale of a consumer internet business. They could, however, aim to be more like, say, China’s Baidu, which looked beyond its own core business (consumer search) when growth slowed in order to acquire or develop proprietary products in a wide range of new areas—including financial tech, medical diagnostics, and autonomous vehicles—that have put the company on a different path and unexpected growth trajectory.
But then, notwithstanding its comparable size and equally skilled tech sector, India is not China. In spite of the government’s recent e-commerce policy recommendations, the world’s largest democracy is unlikely ever to rely on the state to select and groom its national technology champions. India’s tech giants have only market forces to rouse them from their slumber. And there has never been a better opportunity for the Big Five to rise and shine.
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