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India: Crowning Glory

In writing about the tremendous growth potential in India, and how investors can profit from it, I had to leave out my favorite Indian company — and perhaps the best example of this countries ingenuity and skill. Before India’s economy really started growing, and before the cloud-computing renaissance,  there were the Indian “offshoring” companies, an idea created by the seven founders of Infosys(Nasdaq: INFY).

Humble beginnings

Infosys helped India become a hub for this “offshoring” or outsourcing of information-technology resources. Western corporations began shifting their IT services to these companies in the 1990s as a way of reducing costs. Today, Infosys derives more than 98% of its revenue from these foreign companies. From Infosys’s humble beginnings came many other Indian technology outsourcers, such as Wipro (NYSE: WIT), Satyam (NYSE: SAY), and Patni Computer Systems (NYSE: PTI). But Infosys paved the way, becoming the first Indian company to offer true corporate transparency and the first to list shares in the United States on the Nasdaq.

Culture is key

While competition continues to increase in this sector globally, Infosys remains so successful because of the strong culture and brand the company has created. Infosys receives more than a million job applications a year, for about 15,000 to 20,000 positions. The workplace is similar to U.S. companies like Google, located on a large work campus with game rooms, art galleries, and cafeterias that foster teamwork and organizational cohesion.

Not only do young Indian workers turn down offers from other Indian companies to work at Infosys, but today, when traditional U.S. IT and consulting companies such as IBM (NYSE: IBM) come calling, they are often turned down as well. The people of India want to work at Infosys, and the perks of the job keep turnover rate low, which is critical in this business.

The cloud above India

Because so much of Infosys’ business is done in the United States and Europe, the company has also felt the impact of the slowing economy. However Infosys sits in the sweet spot of current business spending. In order to understand the current cloud-computing craze, investors need look no further than the recent bidding war between Hewlett-Packard (Nasdaq: HPQ) and Dell (Nasdaq: DELL) in which HP paid more than $2 billion for server provider 3PAR. HP forked over that huge premium in order to compete more effectively in the cloud computing market.

Cloud-computing outsourcing is much less expensive for companies than traditional outsourcing of information technology. The latter requires facilities and long-term contracts that are cost-prohibitive for companies. In contrast, the Infosys cloud-computing model requires no additional data storage centers or fixed costs.  As companies continue to cut back expenses, their reliance on cloud computing will only grow stronger.

Infosys going forward

As American companies begin spending again and the economy improves, Infosys is in a strong position to win business and grow revenue and profit. The company boasts a very strong balance sheet, with zero debt and strong free cash flow that averages about 17% of the company’s revenue.

The company must find a replacement for company leader and chairman Narayana Murthy when he steps down next year. This is no small matter. As New York Times columnist Thomas Friedman explains:

Mr Murthy is a truly historic figure in Indian economics and politics. He and Nandan Nilekani and the other founders did a great thing. They showed Indians of this current generation just how much they could bring their talents to the global economic playing field and play not only as equals but as leaders with any other country in the world.

The task will not be easy, but the leaders, the company, and the culture of success that Murthy and the other co-founders built have made that job a little bit easier.

Via The Motley Fool by Andrew Bond


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