McKinsey interview with Narayana Murthy

The Quarterly: But the boom in offshoring has also inspired US-based services companies such as Accenture to open up operations in India—essentially to compete with you on your own terms in your own backyard. What will this mean for Infosys?

Narayana Murthy: I think we’re well positioned against the big multinational IT services companies, such as Accenture, IBM Global Services, and EDS. Their customers now have a greater awareness that Indian companies can offer very high-quality application-development and IT-consulting services at much lower cost.

But their coming here doesn’t change the basic economic difference between their businesses and ours. Typically, in the application-development work we would do for an average client, about 70 percent of the effort is done in India or another cost-competitive country. Our general and administrative expenses are centered primarily in India and are about 7.5 percent of revenues today. By contrast, the US companies that are our competitors, despite a strong presence in a country like India, by and large have the majority of their workforce in the United States or in the local market. It is not easy to let go of that workforce. So the economics differ.

Also, it’s not easy for the multinationals to create a workforce equal to ours in a country like India. The multinationals have to compete here for the talent and then train the people. There are many processes that have to be built up over a period of time to do that effectively. And of course, just having talented employees trained to deliver services is not enough.

It’s not just a question of renting a building and hiring a few people and then saying to customers, “The shop is open.

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