Infosys Confident of LatAm Outsourcing Prospects, Quarterly Results Analysis Shows

By Preetam Kaushik

Indian tech player Infosys has traditionally been cautious about expanding in Latin America, much more so than rival TCS which has spent the last eight years aggressively opening delivery locations across the region. By contrast, Infosys has two country locations – Mexico and Brazil – and has focused more on consolidating services from those centers than expanding its LatAm footprint. But when we listened in on its quarterly results announcements last month, we found a marked difference. Infosys execs seem confident of future expansion in the Nearshore space, and in their ability to capture larger profits in Latin American outsourcing.

One of the enduring comments by Infosys CEO Kris Gopalakrishanan a few years ago is that changes in technology matter more for the company than losses from changes in outsourcing policies. That is relevant to how Infosys approached its results this quarter – placing equal importance on the earnings and financials, as well as strategies for the future.

Propellers of growth

Throughout the transcripts of the conference call, COO S.D. Shibulal as well as Gopalakrishnan make references to transformational deals. Shibulal mentioned that the company has won two to three transformational deals this quarter that, in fact, are building on their earlier nine deals won.

According to Gopalakrishnan, positive trends like cloud computing feature prominently in the utility model that the company will take advantage of going forward. Flypp and Shopping Trip 360 are two Infosys products (a retail shopping application, and a mobile application) that the company is looking to leverage. From some of Shibulal’s statements, it seems likely that the company will also focus more on Consulting and Enterprise Solutions (e.g. infrastructure management) for which higher revenues and profit margins are expected.

Regional expansion, and revenue model changes

Infosys’ regional expansion plans could be seen in its establishing a development center in Brazil late last year to focus on the large domestic Brazilian market. Earlier the company set up two centers, one in China and another in Mexico. The company’s specific regionalization plan can be seen in its IMPACT Framework, a delivery solutions and business transformation program. The framework is a complex one involving a number of threads and verticals, but what’s relevant here is the fact that the company would have to work on different platforms that involve cutting-edge technologies.

According to Gopalakrishnan, ten years from now Infosys will see a change in its revenue model. Ten years ago, it was a “technology solutions company”. On cue, it has now expanded into infrastructure management, systems integration and business process management. In the next ten years, say execs, it will acquire further capabilities in intellectual property, ownership solutions, etc, and definitely shift from a fixed price model to ‘pay-as-you-go’ solutions. They hope this will lead to substantial increases in revenue and profitability. What we infer from this statement is that Infosys will increasingly move into cloud computing technologies, since with a cloud model customers pay only for the services they use. In other words, there would be a convergence of what they want to use and pay.

Going forward

In terms of the numbers, the company is not as worried about absolute revenues at the moment, as about currency fluctuation. Infosys does not seem to have anticipated a stronger rupee and seems to be working with an exchange rate above Rs.47 to the dollar. Given the fact that the Indian rupee is continuing to appreciate, this will definitely be an area of concern for the company.

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However there are strong indications from the transcripts and other materials that the company is unfazed by the controversies and fears surrounding outsourcing after the recession, and in fact, Infosys seems to be accelerating its LatAm regionalization plans. The only question is, which location is next?