Infosys leadership facing tough questions

Jay Palmer, a former consultant for Indian IT services giant Infosys and the man who has accused the company of industrial-scale visa fraud, went public in April 2012.

He appeared on the US breakfast TV show CBS This Morning, and repeated his allegations: that when the US State Department began cutting down on the number visas it issued to skilled foreign workers, Infosys began importing full time Indian staff on temporary permits.

Palmer’s claims prompted an ongoing federal investigation. Infosys strongly denies the allegations, saying in a statement that there "is not, nor was there ever a policy to use the B-1 visa program to circumvent the H-1B program."

Meanwhile, the Department of Homeland Security (DHS) is also examining Infosys’s use of an immigration document called Form I-9, used by an employer to verify an employee’s identity and to establish that the worker is eligible to work in the US.

Interesting Links

Infosys visa fraud whistleblower goes public

In its latest financial statement, Infosys acknowledged that DHS had found "errors in a significant percentage of our Forms I-9", and that the company had received a subpoena from a US court in relation to its use of the B1 visa.  

"We are unable to make an estimate of the amount or range of loss that we could incur from unfavourable outcomes in such matters," the company stated, adding that government action to limit its visa use or impose sanctions could "materially and adversely" affect the business.

According to Stephanie Moore, a Forrester Research analyst, these events have prompted some Infosys customers to insulate themselves from the potential fallout.

"Infosys has always been considered a reliable and scrupulous industry stalwart, but its response to its recent visa problems is making clients question their judgment," she wrote last month.

Meanwhile, the company’s business strategy has also come under question.  Like many Indian IT services providers, Infosys has long sought to diversify from high volume outsourcing into high value software product and hosted computing platforms.

It began this diversification in 1999 with launch of Finacle, a software suite for the banking sector. Infosys has since launched further platforms covering HR, e-commerce, asset management and, in 2009, even a white-label app store system called Flypp.

These products and services have had some traction. Airtel, India’s largest telecommunications company uses Flypp to support its app store, and in March, pharmaceutical giant GlaxoSmithKline signed up to BrandEdge, a digital marketing platform built in partnership with British marketing IT company Fabric Worldwide. They have yet to make a significant contribution to Infosys’ coffers – "products, platforms and solutions" generated just 6% of the company’s $6.9 billion revenues in its latest quarter – but it has ambitious plans.

Interesting Links

GSK selects digital marketing platform from Infosys

"We’re going to have one third of our revenues coming from products, platforms and solutions, and there’s going to be a lot of focus on getting this number up over the next few years," says Samson David, Infosys’ global head of business platforms. "We’re looking at doing this in between five and seven years."

The wisdom of this strategy was called into question, however, after the company’s most recent financial report. In the financial year ending March 31, Infosys grew revenues by 16%. By comparison, its main competitor and market leader TCS grew its revenues by 31% over the same period.

And Infosys’ revenue growth forecast of between 8% and 10% for the coming year was noticeably short of Indian trade body Nasscom’s 11% to 12% growth projection for the industry as a whole. The company’s share price dropped 13% following the report.

Investment analysts acknowledged that the market conditions are not ideal, but also questioned whether Infosys’ desire to move up the stack from low value outsourcing services is wise.

“The guidance reflects the challenging macro scenario that Infosys is facing,” remarked Dipen Shah, an equity analyst at Mumbai’s Kotak Securities. “We also understand that a part of the projected underperformance versus the industry is due to the strategy of not chasing low-margin business.”

Infosys CEO S. D. Shibulai seemed to take this critcism to heart. Just days after the official launch of its BrandEdge digital marketing platform, the Financial Times quoted him as saying that the company would be renewing its focus on its low-end “bread and butter” IT and BPO offerings.

That may well have been what the market wanted to hear. But with fast growing competitors snapping at its heels and a global IT sourcing market that is in constant flux, is this the kind of leadership Infosys needs to retain its “industry stalwart” status?

Avatar photo

Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

Related Topics