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Tech Mahindra Targets Major APAC Growth

Tech Mahindra Ltd. is targeting 35 to 40 percent year-on-year revenues growth in Asia/Pacific, despite the current economic climate, according to Rohit Gandhi, head of the Indian IT services company's operations in the region.

Tech Mahindra, which recently acquired Satyam Computer Services, generated just 8 percent of its $985 million revenues (so just $79 million) from outside Europe and North America in its fiscal 2008/9 year (ended March 2009). (See Tech Mahindra Reports Full Year, Tech Mahindra Secures Satyam Deal, and Tech Mahindra Outlines Satyam Plans.)

Most of its revenues (67 percent) come from Europe, home to its largest customer, BT Group plc (NYSE: BT; London: BTA). BT holds a 31 percent stake in Tech Mahindra. (See Tech Mahindra Leans on BT for Revenues.)

Gandhi, though, sees great potential in the Asia/Pacific region's diverse markets. In Asia/Pacific, Tech Mahindra provides its outsourcing and development services to telecom operators and vendors, as well as large enterprises, in India, Indonesia, Malaysia, the Philippines, Singapore, and Thailand.

Gandhi tells Light Reading Asia that the company's priority is to expand its business in geographies where it's already present, adding new customers and new services to current customers.

The one exception to this is Vietnam, which, says Gandhi, Tech Mahindra is looking to enter. However, it takes a serious investment to penetrate a non-English speaking country, as local staff need to be recruited. "The challenge is to get to scale. New markets require large investment, and returns take a while," he says.

Building the business in existing markets is less challenging, as carriers are still investing in service developments. "Investments that have a high impact on the top or bottom line, or that increase ARPU [average revenue per user], are still going strong or even speeding up despite the economic challenges. Other investments are slowing up, as you might expect."

Tech Mahindra is therefore aligning its strategy with this demand, and finding a cushion in its managed service contracts that provide reliable revenue streams.

Two years ago, Gandhi says, almost all of its Asia/Pacific revenues came from IT applications development, but Tech Mahindra has extended its other business lines, led by IT security and network services. Those new lines now generate about 35 percent of its Asia/Pacific revenues.

"In the future we expect the IT application-related services to be our No. 1 business, followed by infrastructure services and BPO [business processing outsourcing].

"All Tech Mahindra's outsourcing businesses are growing, but infrastructure services are growing faster than software -- infrastructure management has a high growth rate at the moment."

The BPO growth is being driven by mature markets as they are "more keen" on it, suggests Gandhi. In these markets, customers are outsourcing entire businesses and are familiar and confident with the accountability and service-level agreements (SLAs) involved, he says.

In emerging markets, Gandhi suggests, it's very much a learning curve, with service providers keen to do everything themselves at first before they realize it makes sense to outsource their day-to-day operations and concentrate on business development.

The exception to that rule, he says, are new service providers that are part of international groups, where knowledge is passed from one operator to another.

He cites Hutchison Telecommunications International Ltd. (NYSE: HTX)'s Indonesian operation, Hutchison CP Telecom (formerly Charoen Pokphand Telecom), as an example of this. Gandhi says the mobile operator, which operates under the Three UK brand, set itself a target of augmenting its subscriber base from around 1 million in mid-2007 to 10 million within a three-year period in a competitive market that currently has eight operators.

And it's on its way there: During the first three months of 2009, it added 804,000 customers to take its total to more than 5.3 million at the end of March.

To help the carrier concentrate on its growth strategy, Tech Mahindra has provided the systems integration to develop a real-time converged IT system, and now operates the carrier's business and operations support systems (BSS and OSS) as a managed service.

— Catherine Haslam, Asia Editor, Light Reading

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