Infosys wins Philips outsourcing business

Philips signs a $250 million outsourcing contract with Infosys and sells three of its back-office centres to the Indian company for $28 million.
IndiaÆs leading technology company Infosys Technologies has signed a $250 million seven-year outsourcing contract with Philips. It has also acquired three of the Dutch companyÆs back-office centres in India, Poland and Thailand for $28 million.

Under the contract, Infosys' business process outsourcing (BPO) division will provide primarily finance and accounting (F&A) services. The contract will start by October.

F&A outsourcing is one of the cornerstones of the BPO industry. For Infosys, the contract not only adds significant annual revenues but it also allows the company to broaden its capabilities in the F&A area. Further, Infosys BPO diversifies its delivery capabilities as it strengthens its European operations with delivery centres in Poland and Thailand.

ôThe deal will further enhance our capabilities and make us one of the top five players in the F&A outsourcing space in the world,ö says Amitabh Chaudhry, chief executive officer of Infosys BPO. Chaudhry also told media he hoped to be able to leverage the expertise Infosys would acquire via the Philips' business to win further business with similar characteristics.

Infosys adds around 1,400 Philips people to its own 75,000 strong employee base. Of this number, around 11,200 are InfosysÆ BPO division employees.

India's technology industry has been adversely affected this year by a strengthening rupee which reduces its ability to compete in software services. The rupee has shown its biggest gains since the 1970s, buoyed by a 9% GDP growth rate and a favourable balance of payments situation. This coincides with a time when the US currency is going through a weak period. The rupee was especially strong in the second quarter of 2007, strengthening from levels of Rs43 to the dollar at the end of March, to Rs40.50 by the end of June.

On July 11, Infosys reduced its sales guidance for fiscal 2007-08 by 6% to Rs162-164 billion ($4 billion), with a corresponding profit reduction, citing rupee appreciation. This caused the overall stock market sentiment to turn briefly bearish, such is the sway of ôInfyö on investors. InfosysÆ largest market is the US and as the dollar has weakened vis-a-vis the rupee, this has taken its toll on dollar-denominated software contracts.

BPO revenues are less vulnerable to currency appreciation and are also currently on a higher growth trajectory.

In an exclusive interview FinanceAsia ran on its website on July 10, Chaudhry said being part of a technology company was a competitive advantage for Infosys BPO because technology plays a big role in ôadding value and transforming the clientÆs business over a period of timeö.

ChaudhryÆs confidence is reflected in the numbers. Infosys BPO clocked revenues of $148 million for the fiscal year ended March 31, 2007 and the company has predicted revenues of $215 million for the next financial year, a 45% year-on-year increase.

The Philips acquisition is only the second acquisition in the history of the Indian company which was founded in 1981. Perhaps more than anything else, this corroborates the importance that Infosys attaches to nurturing and growing its BPO business.

For an in-depth feature on India's outsourcing industry, read the July 2007 edition of FinanceAsia magazine.
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