An Open Marriage?

What people say about why this merger happened is not true, said Abraham

Thomas, IBM India CEO, while announcing the Wipro-IBM tieup for the Indian and

Asia-Pacific markets. "It’s not because Suresh (Vaswani) and I sport the

same kind of French beard. It’s because IBM and Wipro really make a great

team!" Under the terms of this non-exclusive alliance signed in early

April, Wipro Infotech will market, integrate and offer solutions and services

around IBM’s wide range of server and storage products in India, APAC and

Japan.

Thomas has an amazing sense of humor, but even more so, a talent for

understatement. This strategic partnership was long overdue and brings

significant advantage to both parties–for many reasons. At a fundamental

level, Wipro Infotech president Suresh Vaswani says, "We get to leverage

IBM’s strengths as a technology and services provider. And IBM gets to

leverage our strengths in technology and services integration." More

importantly, however, the partnership also gives both companies access to each

other’s markets.

Wipro Infotech had made a foray into the APAC and West Asian markets early

last year in a strategy that widely depended on piggybacking on its

multinational principals. To an extent, that came from extending its

highly-successful domestic partnership with Sun Microsystems to the new

geographies. However, the company’s inability to provide solutions and

services around IBM platforms had been sorely limiting its competitiveness. A

good 20% of IBM’s worldwide revenues come from Asia Pacific. According to

Kakutaro Kitashiro, president, IBM Asia-Pacific, "We saw an 8% growth in

this region, despite the downturn."

IBM, on the other hand, while doing reasonably well in the domestic Indian

market, hasn’t been able to achieve the kind of market penetration it has long

hoped for. The tieup gives IBM a foot into Wipro Infotech’s large domestic

market. Says Abraham Thomas, "It matches leading technologies from IBM with

Wipro’s ability to address the market and it offers our customers both in

India and APAC a wider choice of systems and solutions." This access is

important to IBM at a time when it is slugging it out with Sun in the domestic

server space. It will be interesting to watch what this tieup does to the

longstanding Sun-Wipro partnership. As Wipro’s Vaswani says, "The Sun

partnership is going strong, and will stay that way."

The principal program



Both IBM and Wipro needed the new market access capabilities. Even more so

Wipro Infotech, which had early last year announced a shift in focus from PCs

and servers to what it calls S&S–solutions and services. The increasingly

commoditized PCs and servers business was shrinking margins and Wipro Infotech

hoped to offset that with nearly 30% of its revenues coming from SOS by 2003.

However, services is a zero-sum game in the Indian market, with extremely low

margins. Nor did it have the kind of scale Wipro Infotech needed. That was one

of the major reasons why the company turned to the APAC and West Asian markets.

According to marketing head Anil Jain, these include a $200,000-booking in Q2 of

last year and another five new contracts in Q3 worth $400,000. Among these is a

Dubai e-government project, for which Wipro Infotech set up a data center that

will host 13-14 citizen-facing applications. "We are providing operation

management services there, a little bit of platform integration and data center

management," says Jain. In Malaysia, it participated in a telecom center

project with a local partner, while in Australia–one of the most difficult

markets to penetrate for Indian companies–it set up a help-desk for individual

customers of a large entertainment and gaming service.

However, the APAC experience also gave the company a better idea of its

limitations. Speaking before the tieup happened, Jain identified three major

challenges for the company in the region–language, commoditization of IT

services and completely entrenched competition from the likes of the Big 5 and

global services companies like IGSI. The first two, it could not do much about,

so it set about tackling the third. He said, "We required a strong program

with our principals, who’ll let us into their customer base and introduce us

as a strong technology services provider. In such a relationship, the principal

gets contracts and as part of that contract, avails of our services." At

the time of writing, the company’s Q4 results weren’t out. But in Q3, of

Wipro Infotech’s total revenues of Rs 154 crore, only about Rs 2 crore had

come from APAC and the West Asia. With first Sun, and now IBM firmly in its

partnership bag, the company hopes to up the numbers significantly in the coming

year.

Sarita Rani in Bangalore