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Humble, focused and ambitious: Infosys’ story in Europe sets the stage for sustainable growth

Infosys’ localization initiative pays off as Europe-based clients opt-in for price-competitive services that are aligned with their overall vision

Hosted at Infosys’ Design and Innovation Studio in London, the Infosys Leadership Forum provided attendees with a glimpse into how Infosys is taking an active role in shaping “digital Europe” from both a skills and capabilities perspective.

While North America remains Infosys’ main hub in revenue-generating opportunities, comprising 61.9% of Infosys’ total sales in 3Q21, Europe’s performance over the past several quarters, including the signing of the largest deal in company history with Daimler AG, highlights Infosys’ relentless execution around the pillars of its Navigate Your Next strategy. Localization is fueling much of this success as more than 70% of Infosys’ talent in Europe are local hires.

Infosys’ Europe sales increased 22.8% year-to-year in 3Q21, marking the third consecutive quarter of double-digit growth, a trend we believe will continue at least through the end of FY22 (March 31, 2022). Additionally, high-quality price-competitive proposals enabled by its large deals team and backed by a rightsized and right-skilled bench helped Infosys expand its share of large deals. Infosys has added two new clients within the $50-plus million category and five new clients within the $100-plus million category since 3Q20.

Infosys realizes the value of being local and continues to invest in regional resources and infrastructure, including the opening of a Cyber Defense Center in Romania and a Digital Innovation Studio in Germany as well as the acquisition of Czech-based ServiceNow shop GuideVision over the past couple of years. The company’s success in Europe is no surprise given regional clients have been warming up to outsourcing as they seek cost-efficient modernized IT infrastructures and business processes. Infosys’ ability to stay true to its core value proposition on the services supply side paired with its aforementioned investments in innovation, talent and portfolio offerings, including Infosys Cobalt, and ability to manage its partner ecosystem has set the stage for the company to expand regional market share.

Investments in environmental, social and governance (ESG) initiatives also help Infosys win regional clients’ mindshare as buyers increasingly seek external support to implement government-mandated decarbonization frameworks. As with any new technology and/or a framework, use cases provide invaluable benefit for all parties. According to Infosys the company became carbon neutral in 2020 — well ahead of many of its peers and partners — and we believe the company can use its own experience as a customer zero use case for enterprise buyers seeking to embark on their sustainability initiatives.

With Infosys already executing on its ESG 2030 vision centered on the theme of “Driving profit with purpose,” the company is also seeking to build trust in the circular economy by retuning its mindset and approach to balancing shareholder and stakeholder priorities, with the latter group increasingly challenging the status quo, compelling Infosys and its peers to pay closer attention to investing in portfolio, skills and partner offerings.

Daimler AG mega deal provides a use case around business transformation delivered at scale

Customer panels and use cases amplified Infosys’ value proposition during both the analyst and advisory meetings as well as the main parts of the leadership forum throughout the day. While this customer insight was relevant and connected to the theme of the event, a discussion around Infosys’ deal with Daimler AG stood out.

Infosys Leadership Forum Europe: Infosys held its first in-person forum after an almost two-year pause caused by the pandemic. The company also made the event available virtually, setting the stage for what might become the norm moving forward for such experiences. During the daylong event, thought leaders, government appointees, client executives, analysts and advisors listened to presentations, panel discussions and client stories centered on the theme Acceleration, Inclusion and Transformation. With ever-important topics around skills, digital transformation, sustainability and innovation, Infosys and participants had thought-provoking discussions punctuated by use cases and client stories that highlighted the company’s capabilities as well as its value proposition as being among the key players able to operate and execute in a post-pandemic world.

Cultural readiness and technology savvy: Another view of Egypt’s IT outsourcing ecosystem

With technology a given, cultural readiness differentiates Egypt IT sector

In a recurring point of discussion, CrossWorkers CEO Hans Henrik Groth described Egyptian technology professionals as creating an atmosphere of high “cultural readiness” for working with Europe-based clients, partly because Egyptians travel frequently to Europe for business and Europeans travel frequently to Egypt for tourism. The cross-cultural experiences have provided many Cairene software developers with a useful level of cultural understanding for European clients and have made working for Europe-based companies attractive, given the likelihood of travel to the continent as part of the job. As an example of cultural readiness, Groth contrasted different ways of handling client concerns regarding the European Union’s General Data Protection Regulation (GDPR). In his experience, IT professionals with little cultural context will see GDPR as an obstacle to be circumvented or a set of checklists to be papered over. More attuned professionals understand the European mindset around GDPR and the (general) willingness to adhere to the standards and demonstrate compliance. Overall, Groth cautioned that the technology requirements of providing managed services from an offshore location could be easily met in most situations. The challenges arose with making a cultural match between the lead software engineers and their European clients.

During our discussion with Groth, TBR asked about three aspects of doing business in Egypt: government, IT and physical infrastructure. On the first, Groth noted the gaps and delays between political decisions and practical impacts, but added that the talent pool in Egypt and the country’s current political and economic climate did not necessitate a heavier role from the government overall. On IT, he lamented the high cost of internet service in Cairo, explaining that CrossWorkers needs two means of connectivity — airborne and traditional cable — to ensure constant communications. Even the best fiberoptic cables, as Groth noted, could be undone by someone with a shovel. For an offshore IT services vendor, high internet costs and unreliability would be constant concerns. Lastly, regarding the physical challenges of working in a city as large and densely populated as Cairo, Groth acknowledged traffic presented a constant source of pain and commented on the three-hour drive — on a good day — from Cairo’s airport to the Information Technology Industry Development Agency (ITIDA), located west of the city. To combat this problem, Groth located CrossWorkers’ offices closer to the airport, allowing clients from Europe to see the facilities and meet the talent without enduring too much of Cairo’s traffic. Groth’s depiction of Cairo’s infrastructure confirmed many of TBR’s previous discussions and assessments and pointed to potential areas for immediate improvements, which could accelerate IT services offshoring growth in the country.

After reading TBR’s assessment of Egypt as an offshore IT services hub, Hans Henrik Groth, CEO of CrossWorkers, contacted TBR to provide additional insights and commentary about Cairo’s IT services environment, highlighting the differences between Cairo and other cities Groth has worked, including Islamabad, Pakistan, and various locations in eastern Europe. This special report reflects the hour-long discussion and TBR’s analysis, including from our Spring 2020 Global Delivery Benchmark.

Egypt and IT and the center of the world

What makes Egypt attractive

Egypt’s growing IT services and technology sector has been built on important natural advantages and few forward-looking investments in recent years. The country’s proximity to Europe, considerably large and educated talent pool, and relatively low costs compared to nearshore locations such as Poland, Romania and Bulgaria make Egypt a natural hub for IT services, just as it has been a hub for commerce for millenniums. In addition, multinational companies have long-established histories of doing business in Egypt, building up the trust and goodwill needed for large investments and sustained operations. IBM has had a presence in the country for 66 years, and in addition to its six regional delivery centers in Cairo, in 2019 it opened two new centers — an Innovation and Industry Client Center and a Marketing Services Center — to accelerate digital transformation for public and private sector clients through next-generation solutions such as AI, cybersecurity, digital technology, blockchain and hybrid cloud. Sharing a time zone with much of Europe provides Egypt with a natural advantage, particularly relative to India and the Philippines, two outsourcing megacenters. 

Atop these advantages and potentially separating Egypt from other growing outsourcing locations has been active investment by the Egyptian government in developing a business ecosystem, creating jobs and exports, fostering entrepreneurship, encouraging foreign direct investment, and assisting Egyptians in innovation efforts. While this mandate may sound ambitious, Egypt, a country known for large projects, has kept a tight focus on successful development of IT services and technology exports.

Sustained investment in talent

Egypt’s critical advantage could be its talent base, particularly due to the group’s size, technology skills and fluency in multiple languages. According to the Central Agency for Public Mobilization and Statistics in Egypt, approximately 500,000 students graduate from universities in Egypt every year, of which around 90,000 speak English. To assist graduates in finding employment with multinational companies — and to help those companies develop their employees’ skills — the Egyptian government, through ITIDA, partners with companies to provide mentoring, tools and competitions for startups as well as sponsor various hackathons and other initiatives.

The Egyptian IT sector exported around $4.2 billion in services in 2019, according to the Egyptian Information Technology Industry Development Agency (ITIDA). The country’s IT sector has become a substantial part of the overall economy growth, contributing both jobs and export revenues, primarily from BPO, software, application development and maintenance, and technical support services. TBR sees advantages for Egypt in the post-coronavirus world.

EY’s Managed Services: A co-sourcing partner for value creation

EY’s approach to managed services is a boardroom rather than operational discussion  

While the nuances around the definition of managed services vary across vendors and buyers, the common theme of supporting organizational functions resonates with all. As a result, there is a fair amount of confusion and sometimes little-to-no differentiation among suppliers that are simply trying to expand client mindshare. While the advent of AI, cognitive and similar technologies, along with the firm’s desire to participate in the “as a Service” space, has fueled EY’s efforts to build its information systems management capabilities, the firm’s position in the managed services space is largely determined by its role as a trusted tax partner. While buyers have engaged with EY for years around its tax expertise, outsourcing and/or in some cases co-sourcing, tax technology and tax operations are somewhat newer areas of opportunity for the firm. Delivered through EY’s Tax and Finance Operate framework, the firm’s relationship with the CFO buyer allows it to capture strategic tax activities typically managed by in-house tax professionals including financial crime, tax policy administration and cyber, among others.

EY has seen its fair share of success in the space, most recently signing a long-term managed services agreement with Nokia (NYSE: NOK), which followed a similar deal with a global insurance provider back in 2018 for managing tax and compliance. As part of the Nokia deal, EY will provide tax, finance, data and technology managed services supporting the mobile provider across 127 countries, leveraging EY Global Tax Platform and global delivery centers.

Adding technology to a business framework, as EY did with the inclusion of Microsoft Azure in the EY Global Tax Platform, and platformizing micro-processes to support corporate applications, including corporate income tax, provisioning and value-added tax, is one way EY’s Managed Services practice is trying to bridge the gap between tax services and IT, which can then drive other opportunities, including in advisory services. As digital permeates all services and the regulatory environment across the globe continues to evolve, EY’s investments position it to carve a niche applicable to its strengths rather than building one inorganically, similar to rivals that have been investing heavily in areas such as marketing operations to better appeal to the CMO buyer.

Services Weekly Preview: January 14-18

As the first quarter of the new year gets rolling, TBR’s Services team will be reporting on IT services vendors’ 4Q18 earnings, evaluating their performance and strategies, and pulling through trends across the entire IT services space.

A recap of TBR’s 3Q18 findings can be found in the IT Services Vendor Benchmark, now available for download in TBR’s Client Portal.

Here’s what’s you can expect this week:

Wednesday: 

  • In 3Q18 we estimated Accenture’s revenue would expand 9.6% year-to-year in 4Q18 due to Accenture’s ability to convert bookings to cash and established delivery frameworks. Seasonal softness and headwinds among Financial Services clients in Europe and U.S. Federal caused bookings to decelerate and consulting book-to-bill ratio to drop under 1, at 0.99, for the first time since 3Q15. Accenture reported revenue growth of 7.3% year-to-year in 4Q18 due to some of these headwinds. However, we expect Accenture’s ability to execute on its consulting-to-operations approach will help it gain traction and expand wallet share among its 182 Diamond clients, including the 13 clients it gained in FY18.
  • In our Accenture Healthcare IT Services report, we note Accenture’s M&A ambitions in the healthcare sector seem to have cooled. Accenture finished 2018 without making a major healthcare-related acquisition, despite large companies, both inside and outside the technology services sector, leveraging M&A to enter the digital healthcare space and accelerate investment in healthcare IT innovation. While a continued robust volume of M&A activity in healthcare IT is expected in 2019 and will only serve to further inflate the valuation of healthcare IT acquisition targets, Accenture’s fiscal health surpasses most competitors’ and it could compete vigorously for these acquisitions. Because Accenture is focused on using M&A to enhance nonhealthcare-related growth initiatives, high-quality healthcare IT and consulting assets are falling into the hands of competitors with aggressive M&A strategies. TBR expects Accenture will stop allowing peers (especially smaller peers) to snatch up high-quality assets, IP and capabilities and will narrow the healthcare IT capabilities gap, as it has done in the digital market space.

Friday: In 3Q18 we estimated Wipro IT Services’ (ITS) revenue would remain flat from the year-ago quarter as weaknesses in core services and solutions offset expansions in the company’s digital business. Wipro ITS’ ability to upsell its clients helped extract additional wallet share from its top five clients; however, the company faces pressure in client retention, as its total number of active clients dropped during 3Q18. We expect these challenges combined with the elimination of Wipro ITS’ data center hosting business will have negatively impacted revenue performance during 4Q18.

Last week TBR rolled out its initial assessment of Tata Consultancy Services (TCS). In 3Q18, based on TCS’ historical conservatism regarding acquisitions, TBR predicted TCS would likely remain quiet on the M&A front in 4Q18: The company “has demonstrated a strong preference for expanding its portfolio and global delivery resources organically rather than through M&A.” Over the last two years (driven by the digital wave), we have observed TCS earmarking free cash flow and investment capital to internal R&D and co-innovation with clients at regional innovation hubs rather than making acquisitions (unlike more acquisitive peers, such as Accenture and Cognizant). However, TCS surprised us with not one but two acquisitions in November: BridgePoint Group (financial services consulting) and W12 Studios (digital and creative design). Given TCS’ four-year hiatus from M&A and that these acquisitions are small-scale and will not impact TCS’ revenue substantially (TBR estimates they will contribute only $10 million to $20 million in new organic revenue annually, compared to TCS’ $20 billion in sales expected in FY19), we do not expect TCS to acquire again until these new assets are fully and successfully integrated. Given TCS’ four-year hiatus from M&A, and even though these acquisitions are small-scale and will not substantially move the revenue needle for TCS (we estimate both companies will only contribute between $10 million and $12 million in new inorganic revenue on an annual basis – TCS will generate over $20 billion in sales in its fiscal 2019), we expect TCS will not make further acquisitions until the newly acquired assets are fully and successfully integrated.  We believe this quiet period could end, however, by 2H19, as TCS is compelled to shed its traditional aversion to inorganic growth to keep from losing more addressable market to peers such as Accenture, which has acquired its way to the top of the digital marketing space. For additional information on TCS, contact Senior Analyst John Caucis at [email protected].

 

In the next few weeks we will issue our initial 4Q18 reports on each vendor in TBR’s Services portfolio.

5G-readiness spend and migration to new network architectures spur the TIS market to growth in 3Q18

According to Technology Business Research, Inc.’s (TBR) 3Q18 Telecom Infrastructure Services (TIS) Benchmark, the TIS market grew as communication service provider (CSP) investment in areas tied to 5G-readiness increased. CSPs are rearchitecting their networks leveraging NFV, SDN and the cloud as well as implementing new business models, which requires growing spend across a broad range of professional services. Deployment services spend grew slightly, but the market will strengthen as the 5G spend cycle ramps up over the next couple of years, although the spend intensity will be lower than during the LTE cycle. RAN suppliers Nokia (NYSE: NOK), Ericsson, Huawei, ZTE and Samsung will capture incremental TIS market share as they drive high volumes of services attached to their 5G RAN. This is already occurring to some extent as CSPs densify networks as part of their 5G-readiness strategies. Though 5G will require significant hardware spend, the aggregate amount will be lower compared to LTE, which will drive vendors to explore new market areas, such as Industry 4.0.

The managed services market was flat year-to-year in 3Q18 as a decline in outsourcing was offset by growth in the out-tasking market. Generally, vendors are exercising pricing discipline when determining which outsourcing contracts to take on in an effort to improve margins. Ericsson is currently leading the way in this regard as it evaluates 42 contracts for exit or rescoping. Huawei, ZTE and CCS have been less concerned with price and are focused on consolidating the outsourcing market. Other vendors, including those that are historically hardware-centric with little to no footprint in the managed services market, are increasingly playing in out-tasking as they will manage applications deployed in CSP networks. Ciena (NYSE: CIEN) is an example of this trend.

 

 

TBR’s Telecom Infrastructure Services Benchmark provides quarterly analysis of the deployment, maintenance, professional services and managed services markets for network and IT suppliers. Suppliers covered include Accenture (NYSE: ACN), Amdocs, Atos, Capgemini, CGI, China Communications Services, Ciena, Cisco (Nasdaq: CSCO), CommScope, CSG International, Ericsson, Fujitsu, Hewlett Packard Enterprise (NYSE: HPE), Huawei, IBM (NYSE: IBM), Infosys (NYSE: INFY), Juniper Networks (NYSE: JNPR), NEC, Nokia (NYSE: NOK), Oracle (NYSE: ORCL), Samsung, SAP (NYSE: SAP), Tata Consultancy Services, Tech Mahindra, Wipro (NYSE: WIT) and ZTE.