The low-lit pub off Bangalore?s Brigade Road is a hub for American garage rock and punk. As giant screens belted out ?Under Cover of Darkness? from a New York band, The Strokes, a group of 20s-something walked in for some after hours fun. They spoke cricket, Bollywood, motorbikes and MNC jobs. A pony-tailed hunk jested he would like to work for either Hindustan Packard or India Business Machines. His friends LoL-ed.

The joke, however, was not entirely out of place. Both Hewlett-Packard (HP) and International Business Machines (IBM) are a lot about India. IBM employs more than a lakh personnel in the country? more than any other multinational?to service customers globally and sell technology services, hardware and software in the domestic market. The firm aspires to be a national asset by transforming Indian industries. Already, it has played a part in telecom?every second Indian mobile user is serviced by IBM. Every day, IBM sensors watch the sea for Tsunami signals. Real-time seismic data from the Indian Ocean is analysed to create early alerts. And every day, a researcher from the company records traffic noise from a cellphone in New Delhi?s busy streets; he calculates traffic flow that can some day help India make its transportation system smarter.

IBM is 100 years old. In India, it is just two decades old but is already a microcosm of the global entity. All IBM groups are represented in India, starting with Global Business Services and Global Technology Services to Software, Systems and Research. India has been steadily growing in importance since the early 2000s, or ever since global delivery, the most successful outsourcing model, started becoming mainstream. All IT MNCs restructured to look and feel more like an Infosys, TCS or Wipro. IBM ramped up global delivery from India in a way few other multinationals could.

TR Madan Mohan, managing partner of consulting firm Browne & Mohan and a former professor at IIM Bangalore noted that IBM chairman Sam Palmisano?s vision to leverage India was craftly executed by Abraham Thomas and Shanker Annaswamy, the past and present bosses of IBM India. ?Palmisano realised that while IBM could bulldoze its opponents by its sheer size and depth of offerings in consulting, maintenance, BPO and advice in any vertical, its Achilles? heel was that it couldn?t offer its services cheap because of high-end legacy issues,? he said. ?IBM India effectively mitigated this pain by offering low cost, high energy resources. India acted as a powerhouse of manpower to substitute for the layoffs which started in 2008 onwards in North America,? he added.

Recently, Gartner reported that IBM has retained its number one market share position in IT services globally, growing 2.6% in 2010 to $56.4 billion. The firm accounted for 7.1% of the market while Hewlett-Packard, the number two player, accounted for 4.5% of the global share. While IBM does not separate out its India contribution, trade publication Dataquest reported that IBM India had revenues of R12,388 crore in FY2010; 52% of this was exports.

While IBM India is heavily skewed towards delivering IT services to global customers, the firm?s domestic market story is interesting and, in a way, chronicles the rise of Indian enterprises like Bharti Airtel and Jet Airways who went global. Both the enterprises partnered IBM for transformational programmes. What began in 1992 as a joint venture with the Tata Group, is now more than a billion dollar business. Projections on the revenue number from IBM?s domestic business vary but according to one industry watcher, it was at $1.50-$1.60 billion in 2010. Considering the small size of India?s IT market?about $17 billion?it is a good number. Data sourced from IBM?s annual reports tell that over the last five years, India?s growth has mostly been faster than that of combined BRIC nations. In 2010, though, IBM India grew at a slower pace than the BRIC average. The firm is the leader in the domestic IT services market (about 13% marketshare in FY 10) but Wipro is fast catching up (11% share).

The company has been a trendsetter in multiple ways. It has pioneered the data centre market and tasted success with its software suite as well as Intel-based servers. According to Dataquest, the firm increased its x86 marketshare in FY10 to 22% compared to 20% in FY09. It was only behind HP that had 32% of the market and ahead of Dell that had 20% share. In non-x86, it has market leadership.

However, nothing has been more celebrated than its heroics in the large deal space. IBM brought global attention to India after it cracked a $750 million 10-year deal with Bharti Airtel in 2004. Multinationals, and indeed many of the top tier Indian firms, realised that there were a lot of business to be done even in India.

Very few would have followed the deal as closely as Amit Sharma, the current vice-president and general manager of IBM?s operations in India. As the firm?s CFO in 2004, he was involved in baking the deal. It took more than two years of negotiations to crack it, he quipped, looking out of his office window in Bangalore, IBM?s corporate headquarters in the country and one with a stunning view of an old airport. ?From a domestic standpoint, the deal changed the game. Nobody ever dreamt of a deal of this size and scale at that time,? he added.

One of the key elements of the deal was basing IBM?s relationship on Bharti?s revenue. It was India?s first large outsourcing deal with a risk-reward model. ?We were leveraging the India balancesheet big time to do a deal of this size?we took over all their capital assets. We had no choice but to make this a success. It was literally do or die for us. There were lots of financial risk but also upsides,? Sharma said. The deal involved IT and consulting and as the relationship scaled, IBM sold Bharti additional pillars of technology and services.

IBM calls such transformational deals ?strategic outsourcing? or in a geeky way, ?SO?. Industry watchers, including competitors, agree that the firm is a master at the game and knows how to structure such deals, price it as well as execute them. Most other Indian firms are still learning the trick. Karthik Shivram, director sales of Strategic Outsourcing at IBM India explained: ?SO? essentially means an integrated offering that requires the weight of IBM?s different groups to be pulled in for a deal. ?It combines traditional infrastructure outsourcing, application management, take over and transition of people, investments into ongoing growth and asset requirements of clients. It is approached as a combination of business and IT. We take on certain parameters that are key to the business and play a larger role in the client?s business,? he said. The firm has consistently cracked SO deals?besides Bharti, there is Idea, Vodafone, Tata Motors, Jet Airways, Digicable and Amul among many others.

Nevertheless, the Bharti deal remained the biggest and brought the entire IBM company to India?s doorstep, engaging the interest of the firm?s senior management. India became an even more attractive investment destination. IBM, in 2005, bought Network Solutions, an IT infrastructure service provider with clients in the fast growing small and medium (SMB) market of India. After cracking the big enterprise, SMB appeared to be the next big thing. Kishan Bhat of Zinnov estimates SMBs to form about 30-35% of the Indian IT market and the ?M? of the SMB is growing at 12-15%.

Nonetheless, the market never proved easy for IBM and according to analysts, the firm still continues to struggle in the segment. Network Solutions had 250 customers at the time of the buy. Today, it has 40 clients less, sources said. Many employees were poached by Cisco, HP and Wipro. The unit currently generates about $26 million in revenues and was not a wild success from a revenue perspective, the source added.

IBM?s strength in big deals became the most obvious weakness while selling to smaller firms. ?While the firm almost always impressed bigger Indian companies with its strong processes, it scared away the smaller companies,? a former Network Solutions employee said. IBM, for instance, does a credit rating of the customer before signing a deal. The contracting process is lengthy and small companies either don?t have the bandwidth or are not patient enough. ?SMBs are used to flexibility and lot of it works on trust. If you want to succeed here, you have to be nimble and agile. Processes meant for large deals can?t be used in the SMB space,? the employee said. Sudhir Sarma, founder of Network Solutions, was unavailable for this article.

IBM India executives agreed Network Solutions didn?t work out the way they expected it to. The firm wanted a ?starburst? out of Network Solutions? clients?a sort of chain reaction where one customer in a small town leads to many more?this never got triggered. ?It did not materialise primarily because from an offering perspective, we were not ready to go down to those small transaction levels at that point of time. Given the nature of the clients, and our assessments of their creditworthiness, it was not a business that we wanted to take a risk on,? Amit Sharma said.

But is IBM India now ready for the great SMB push? How will it crack smaller companies who don?t like legal documents thrown at them? Importantly, how will it take on nimble competition, both from other multinationals as well as Indian firms?

To understand the changing nature of competition in India?s IT landscape, we caught up with an executive from a prominent channel company that sells a lot of IBM hardware. Over some fine tea, he explained that Huawei-Symantec, an entity established in 2008, is undercutting IBM in the storage market. In servers, Cisco, Hitachi and Fujitsu are emerging competitors while HP is growing strong in blade servers. In IT services, IBM is bracing up to competition from Wipro, HCL, TCS and tier two system integrators whose flexibility make them the natural choice for SMBs.

But IBM knows how to make elephants dance. The 100-year old firm is a great survivor and in all these years, has seen all sorts of competition. Its superior organisational structure lends well to a model where it can create great strategy and then execute it well. In a conversation intercepted by frequent use of the whiteboard that explained how IBM functions, the firm?s India director of Strategy and Business Development Jeby Cherian concluded that the company is ready for the SMB market, is betting on analytics and the latest industry buzz, cloud computing. The firm added no less than 700 clients in India in 2010, most of them from the mid-market.

?Our SMB growth will be driven by multiple things. One is geographic expansion where we will spread across many more cities in India. Second would be creating replicable solutions?something that you can take from client to client. The third driver would be expanding our partner channel,? he said. The firm is also refining the process required to go after smaller firms. ?If you are dealing with an enterprise client, it may take 6-7 days to put a proposal together. You can?t expect that with an SMB. You have to turn it around in 24 hours. We have got that process in place. We have proposal factories and sales hubs that integrate all IBM functions,? Cherian said.

Even so, IBM will never take credit risk that tier two system integrators can. Cherian said that is a difficult proposition for any corporation with a ?shareholder first? policy. ?Some companies want us to take unlimited liability, which IBM will never do. If we are going to lose business because we are not flexible on that, we are not worried,? he noted. IBM would also never really focus on very small organisations. ?We are an enterprise-class company. There is a segment of the SMB market that understands the value proposition. Organisations such as Amul and cooperative banks are among them,? the executive explained.

Cherian said that IBM India wanted to get to a certain revenue number by 2010 during a planning cycle in 2006. It achieved by 2008. By 2013, the firm now wants to double its ?impact? in India. Impact could be the turnover, margins and the number of transformational deals among other things.

Shanker Annaswany, IBM India MD, recently told reporters that one of the driving themes of the company?s centennial celebrations would be to ?make the world work better?. If IBM can double its impact over the next two years in the country, India could possibly also work better.