Patel

ARMONK, N.Y. – When IBM Corp. announced in June 2006 at an analyst conference in Bangalore, India that it would invest $6 billion in India over the next few years, describing its plans for the South Asian nation as “long term,” all that was left for Big Blue to do was prove it.

Consider it done.  The Armonk, N.Y.-based technology giant earned close to $1 billion in revenue in India in 2007, according to statements issued by the company in late December, reflecting a surge in business for IBM’s hardware and services divisions. Sandip Patel, managing partner of IBM’s Global Business Services unit in India and South Asia, said IBM’s revenues during the first three quarters of 2007 were 39 percent higher than during the same period of 2006, when it generated total revenues of $700 million.

That’s not all – IBM India Pvt. Ltd., as it is formally known on the subcontinent, added nearly 20,000 workers to its India payroll last year, boosting the total headcount there to approximately 73,000. All things considered, 2007 was a banner year for IBM India.

“The way that I would characterize IBM in India is as the market leader, and we are committed to growing our business in India,” Patel said. “India is part of what IBM defines as an emerging market – it is one of the BRIC countries – and as an organization, we have put plans in place to spend an additional $1.6 billion in the BRIC nations over the next three years. IBM also expects to double its sales in the BRIC nations by 2010.”

Generally used by economists to refer collectively to Brazil, Russia, India and China, the term BRIC was first prominently used in a 2003 thesis of the Goldman Sachs Group investment bank. The main point of this paper was to argue that the economies of the BRIC nations are rapidly developing and that by the year 2050, will eclipse most of the current richest countries of the world.

But, India remains IBM’s most important foreign market. “IBM’s focus on India as a market is clearly very strong,” Patel said. “We have achieved strong growth here for a variety of reasons. For example, IBM does not view India as just a cost game, which many of our competitors have been playing; we are not using India as just a low-cost services market. We have actually created in India a microcosm of what we call a globally integrated enterprise.”

“In India, IBM has core services, like a computer-software and hardware business, a fully functioning research lab and an industry-solutions lab,” Patel added. “As you can see, IBM has been so active in India over the last few years, its operations there truly are a microcosm of what the company is doing around the world.”

IBM India is the fourth-largest employer in India’s vast information-technology industry, ranking behind Tata Consultancy Services, which has more than 100,000 workers; Infosys Technologies Ltd., with a payroll of about 80,500; and Wipro Technologies Ltd., which employs approximately 78,000 people in India. Yet, IBM’s Indian subsidiary has the parent company’s second-largest workforce in the world, ranking behind the company’s U.S. –based operations, which employs more than 130,000 people. IBM India has facilities in all of India’s major cities – Bangalore, Delhi, Kolkata, Chennai, Pune, Gurgaon and Hyderbad – from which it conducts research and provides consulting services.

IBM, India old friends

IBM India was originally established in the 1930s as a wholly owned subsidiary of IBM World Trade Corp. and operated successfully until the mid-1970s, when India’s Foreign Exchange Regulation Act Required foreign-owned companies to reduce their equity ownership to as little as 26 percent (this was the case with IBM). Big Blue was unwilling to accept these terms, so in 1978 the company pulled out of India, though it did continue to transact business in the country as an offshore entity through a small liaison office.

Upon India’s economic liberalization in 1991, IBM re-entered the country the next year as a joint venture with Tata Consultancy Services, named Tata Information Systems Ltd. The business focused on product sales.

In 1997, five years after returning to Indian shores, IBM Corp. established IBM Global Services; the next year, the company partnered with the Indian Institute of Technology’s Delhi campus to create the India Research Lab. And in 1999, IBM purchased Tata Consultancy Services’ stake in the Tata Information System joint venture to create IBM India Pvt. Ltd., a fully owned subsidiary of IBM Corp. IBM India’s 2007 revenue boost can be chalked up to more than a dozen key deals won by the subsidiary during the year. The list of clients, which covers a variety of business sectors, includes Indian heavyweights such as Delhi International Airport Ltd., DLF Group Ltd. (India’s largest real-estate developer), Idea Cellular Ltd., Financial Information Network & Operations Ltd., Apollo Hospital Group (Asia’s largest health-care group), and most recently, Vodafone Essar Ltd.

“A lot of what we see in the growth of our business is tied back to how we transformed our business over the years,” Patel said. “Within India – and I think this is true in many other emerging markets around the world – you do have several sectors growing very dynamically, such as infrastructure, airports, telecommunications and construction. These industries are growing at a significant pace in India, which is reflected in the deals that IBM India won last year.”

If any of IBM’s technology products symbolized the company’s expansion in India, it is the dual-core Power6 chip – the world’s fastest microprocessor – which the company introduced to the subcontinent last December. The introduction of the Power6 chip – which powers IBM’s System p570 server and the BladeCenter JS22 Express blade server, both of which are now available in India – mark the company’s efforts to court small- and medium-sized businesses in the country.

“We are looking at the SMB market in a big way for Power6,” Shashi B. Mal, director of IBM’s Systems and Technology Group in India and South Asia, said in a statement. “The new growth of IBM is coming from SMB, which constitutes [$51 million to $102 million]. The deal size today for our servers is about [$64,000 to $77,000].”

The Power6 is IBM’s latest addition to its “Project Big Green” initiative, which provides “unparalleled power savings on mid-range servers through dynamic reallocation of resources, power and cooling benefits,” according to Mal.