"US government business works in two ways: one of them is directly engaging with the government. That will take time because you have to get kind of a certification, which takes time," said Shibulal. "We expect the business to start kicking in from next year," he said.
Until it makes an acquisition, or gets necessary approvals for bidding directly, Infosys plans to partner established American firms and become part of a bigger consortium for gaining the government business.
The third and immediately available option being explored by the company is sub contracting. "It would be a low hanging fruit, and we have started talking to potential partners for subcontracting opportunities," he said.
"There's a big opportunity in healthcare, because it's getting regulated," he added. The company will need to compete and also partner with established rivals such as IBM and Computer Sciences Corporation (CSC).
In October 2009, Infosys said it will invest around $5 million in establishing its public services subsidiary. The company also plans to hire around 1,000 local staff in the US, most of which will help build the government unit.
Many governments insist on delivery of projects locally in order to avoid a mass public backlash and also ensure that the sensitive citizen data remains in their countries.
Last year, the company appointed Eric Paternoster to head its government business in the US. Paternoster will report to Ashok Vemuri, who heads Infosys' US business, and will also work with the company's independent director, Jeffrey Sean Lehman. Apart from Paternoster, the Infosys Public Services board consists of SD Shibulal, Mohandas Pai, Vemuri and Lehman.
Experts such as Rodney Nelsestuen, senior research director of Tower Group, say Infosys will need to tread cautiously as local sentiments are against offshoring vendors. "Most providers of services to the US government must demonstrate certain hiring and employee characteristics.
I suspect Infosys will build a very strong onshore presence, hire US nationals (which most offshore outsourcers have been doing over the past year anyway) and position itself as a global company with a strong US presence and delivering not only good services, but services provided by US citizens and augmented with lower cost offshore resources," Nelsestuen said.
Infosys, which serves top corporate customers such as American Express, Bank of America and BP Plc, leads domestic rivals Tata Consultancy Services (TCS) and Wipro in terms of profitability with almost 30 percent operating margins.
"A way to improve profitability is to create platforms. We can create a platform that can be used by say, five states," said Shibulal. He said even if around 30-40 percent of some work can get offshored, that's good enough.
Unlike a traditional outsourcing contract from private sector firms, government customers are asking vendors to take away all functions including the infrastructure for delivering and hosting the solutions.
However, compared to private sector customer engagements where vendors such as Infosys are able to maintain high profit margins by delivering projects from cheaper, overseas locations, the government outsourcing business is viewed by many as low-profit because of several restrictions.
While both TCS and Wipro have count several state governments as their public sector customers in the US, Infosys, according to rivals and some experts, may have been late in addressing the opportunity. Rival Wipro already has a nine year $407 million outsourcing contract from State of Missouri for delivering health care related IT services to the US citizens.