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Faced with declining margins and billing rates and having to do more per dollar, top Indian software service companies are now turning to their existing clients for growth and margins.
The mantra of 'Mining Deeper' hinges on being able to successfully sell more services to existing clients.
While repeat business already contributes a very high percentage of revenues for top-tier Indian software companies, on an average 85 per cent plus, the ability to sell more to an existing client also entails huge savings in marketing costs.
Today, one of the reasons for shrinking margins, alongside depressed markets and competitive billing rates, is increased marketing spends.
According to sources, Wipro Technology has seen a 30 per cent growth in annualised revenues in certain top accounts in the last six months, thanks to this very focussed strategy of mining existing customers for more.
Infosys, also has been a past master in being able to sell more services to its existing clients.
Selling more does not mean selling more of the same. Mining deeper would mean being able to successfully sell varied service lines ranging from infrastructure management to BPO services to routine application development and maintenance projects.
In the last one year Indian companies have increased their bouquet of offerings to include such service lines.
"One of the reasons that Indian companies are looking at their existing clients with renewed focus is the fact that today new clients who are strategic in nature are coming at probably lower billing rates than the existing ones," says industry veteran Dr Sridhar Mitta, who heads a $100 million technology holding company e4e Inc.
True, in a scenario where the cost of snagging strategic accounts, with ten million dollar plus annual revenues, are much higher today.
Concurs, Partha Iyengar, vice president, Research, Gartner India, that margins could be favourably impacted if companies are able to get more dollars out of existing customers.
"I agree with your hypothesis, provided that these companies are in fact able to achieve this deeper 'mining' of existing accounts, which involves actively locating, grooming and developing contacts with new business centres, actively leveraging relationships in one part of the organization in developing business potential in another part, investing in gaining a better understanding of the formal and informal power equations in a company, beyond what is obvious with the first relationship with a company."
Says, S Gopalakrishnan, deputy managing director, Infosys Technologies," At Infosys our client engagements today are becoming truly global, large, strategic and more complex. We have been helped to a large extent by the fact that in the last eight months India is becoming more strategic in everyone's business plans. The ability to mine deeper has also happened because clients today are willing to expand their engagements in India to look at other service lines also and derive cost benefits."
Gopalakrishnan admits that while sales and marketing costs have gone up in the last two years they will be capped at existing levels, as a percentage of revenues, going forward.
According to market watchers, this is expected to have a positive impact on margins in the quarters going ahead especially if revenue growth is going to be volume led.
At rival Wipro Technologies, the story is repeated. The company has apparently put in place an elaborate plan to tap existing clients for more revenues and also consciously cut general and administrative expenses like travel and communication.
"We are looking at channelling these savings into our marketing costs. Additionally, Wipro today as a strategy is mining existing customers deeper to cross sell its entire range of services, which going forward may reap incremental positive benefits," says Anjan Sur, chief investor relations officer, Wipro Technologies.
But Gartner's Iyengar warns that mining deeper is easier said than done.
"Indian sales personnel have historically been bad at doing this. We tend to establish one account in a company and then 'latch on' to that relationship with blinders and focus almost exclusively on managing that relationship," Iyengar points out.