As the global software/IT offshore outsourcing leaders face slower growth rates, they are looking for ways to move higher on the service value chain.  Infosys Technologies Ltd. (ADS) (INFY) has placed a big bet by offering to acquire Axon Group PLC for more than US$753M.  The move brings Infosys both a higher end SAP consulting practice and increased access to European markets.  According to an article in the Wall Street Journal (sorry, subscription required; Reuters also covered the story):

“Infosys Chief Executive Kris Gopalakrishnan said the company wanted to increase its consulting business by adding to its client base. Axon confirmed the offer and said its board recommended shareholders approve it.

Indian technology companies have long depended on basic tech servicing, such as programming applications and maintaining computer systems, to make money. However, rising wages and increasing competition for the country’s engineering graduates have made it difficult for them to keep hiring enough people to grow at the same rates they have before.

Now, Infosys and its competitors are looking to grow through higher-value areas like consulting, which bring in more revenue per employee. Consultants potentially bring more business as they work through problems that involve other parts of the company.”

These sound similar to the explanations that we heard for hiSoft’s acquisition of Envisage (also mentioned here and here).  Established outsourcing companies see the demand for higher end consulting, appreciate the stronger margins for consultants and believe that the consultants can “pull” additional services.  By all reports, this is working very well for hiSoft.  The contributions from the former Envisage team are helping hiSoft to emerge as a leader among the Chinese IT outsourcing companies.

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