Bala told Computer Business Review that Wipro’s work in this industry is divided into two areas. The first includes the more traditional offshore IT services, mostly applications work. Bala said this area makes up some 10% of Wipro’s annual revenue (for the 2006-07 fiscal year, Wipro clocked in $3.47bn in total revenue, making it India’s third biggest services exporter).
The second area is on the product development side, one in which a number of offshore firms, including Wipro and its peers, are increasingly active. This business covers design, testing, and even the building of goods for product companies, often electronics and high tech manufacturers. Bala said this segment contributes between 7% and 8% of the company’s revenue.
On the applications side, Bala said that manufacturers were looking to improve supply chain enablement, operations, and supplier coordination through outsourced services. Wipro’s services in the area include integrating customer demand forecasting into supply chain systems, systems work for improving visibility of the shop floor of, and plenty of applications integration for manufacturers’ international operations.
Many of the US manufacturers have 50% of their portfolios outside of the US, Bala said. In Europe it’s the same thing. And a lot of the manufacturing doesn’t happen in the US or Europe, either.
Wipro’s notable manufacturing clients include Honeywell, GM and 3M. On the GM account, the company provides worldwide application integration for their plants around the world, Bala said. Any of GM’s partners that work on application integration, they work with us, he said. Wipro also handled a complete SAP implementation for Sanyo’s US and European operations.
The engagements come in all sizes. Some are large deals, others are project-based ones that may look bigger then they actually are, Bala said. He said the deal values range from $50m to $60m down to insignificant amounts.
Some manufacturers have spent money on IT but haven’t outsourced, Bala added. Our growth isn’t reflecting an increase in IT spending in the manufacturing industry, but an increase in the amount of spending that goes to outsourcing.
Bala has seen particular activity among automakers and high-tech companies. And in the last couple of years, small and medium-sized businesses have really stepped up their outsourcing practices too. These SMBs are much more mature and fast-growing companies now, and they need IT support for the scale they require and to quickly integrate their latest acquisitions.
There’s also been a trend among manufacturers to focus more on some of the services around their products. Service is becoming a bigger part of their profits, even if it’s still a small part of revenue, Bala said, and this was driving investment in outsourcing to support manufacturers’ services.
Competitively the market is still controlled by the big global services firms, Bala said. Not only do they have the natural strength of incumbency, but they also enjoy a much greater reach into the market than an offshore player such as Wipro. But he noted that the Indian firms may have a leg up in some aspects. They’ve managed to grow strongly away from their target markets, not in them. And they haven’t at the US and Europe as separate markets, choosing instead to focus on their clients’ global needs.
