The key is to offer services beyond the cut-rate application-development and project-management services for which the Indian market is well known. New offerings, primarily consulting services targeting specific markets, must continually be added to the mix. "We used to be in the business of selling parts," B. Ramalinga Raju, Satyam's founder and chairman, said Monday. "Now we sell cars," he added metaphorically.
Satyam's consulting and enterprise-systems business anchors the company's growth and accounted for more than 37% of its revenue for its first fiscal quarter of 2006, up from nearly 33% for the first fiscal quarter of 2005. "Consulting captures the requirements of the customers and lays out in a broad way the solutions that matter to them," Raju said in a follow-up interview with InformationWeek. G.B. Prabhat, Satyam's director of consulting and enterprise solutions, echoed that sentiment during his presentation on Monday: "This represents tomorrow's business." The company's largest portion of revenue still comes from its software-development and maintenance business, which, during the same quarter, accounted for more than 51% of revenue. But that was down from nearly 57% for the first fiscal quarter of 2005.
Some of Satyam's growth in consulting services has come through its April acquisition of investment-management consulting-services provider Citisoft Plc. and its July acquisition of Singapore-based data-warehousing and business-intelligence consulting-services provider Knowledge Dynamics Pte. Ltd.
Challenges abound. Satyam and its peers, which include Infosys Technologies, Tata Consultancy Services, and Wipro, have to build and sell more-sophisticated consulting services while overcoming reputations that largely brand them as application-development shops. Satyam leaders say this is becoming less of a problem as they communicate their ambitions to the market. "No longer is working with companies like Satyam looked down upon," said Ram Mynampati, president of Satyam's commercial and health-care businesses.
"Consistent and dependable delivery of services has changed the perception of Indian companies," Raju told InformationWeek. "Customers no longer assign risk to Indian companies the way they did."
Indian service providers are also contending with a number of factors that weigh on their ability to turn a profit. While revenue has grown sharply--Satyam reported $793.6 million in revenue for fiscal 2005, ended March 31, up about 40% from $566.4 million for fiscal 2004--profit margins have lagged. The company attributes this to a number of factors, including salary increases and foreign-exchange variations. "We are trying to do better margin management as an organization," Satyam CFO V. Srinivas said during his presentation. Repair work for the company's margins begins with improving internal efficiency and cutting selling, general, and administrative expenses, he added.
But lower margins are also a sign of Satyam's rapid growth. "They're running lower margins, but they're running faster," says Rusty Johnson, emerging market portfolio manager for investment advisory firm Harding Loevner.
During the past few years, Indian service providers including Satyam have closed the gap between themselves and large multinational service providers such as Accenture and IBM Global Services by offering a more integrated set of services, Johnson says. Since most Indian firms offer consulting services, one of the remaining challenges is for them to distinguish themselves from one another. One of Satyam's advantages is that the company made a name for itself as a provider of SAP implementation services, Johnson adds.
Despite their successes, Indian service providers for now continue to initially attract business because of their competitive prices. "What's changed is that Satyam used to compete only on price," says Ashish Thadhani, senior VP of research for Gilford Securities Inc., a private investment-banking firm. In the future, Satyam and its peers will have a better opportunity to sell their consulting services as the market becomes more comfortable with Indian firms' more traditional application-development and management services, he adds.
"The challenge for us is to deepen our domain competencies and bridge any competency gaps," Raju acknowledges optimistically. "The last 15 years will pale in comparison with the next 15 years."