|BRAINSTORMING FOR INDIA'S SOFTWARE INC.:
(from left) Giga Group's Mike Dodd, Deutsche Bank's Alfred
Elbrich, Nasscom's Kiran Karnik, Som Mittal, and Phiroz Vandrevala,
Infosys' Nandan Nilekani, and McKinsey's Noshir Kaka at Nasscom's
International IT Conference in Mumbai
was India's great hope, but now it is flagging. Is it truly the
end of the road for India's prized software industry, or merely
a trough that it will soon ride out of? In any case, what should
be the way ahead for the $11-billion industry? To find answers to
these and some more questions, Business
Today brought together some of
the best names in India's Software Inc. and global experts at Nasscom's
four-day International it Conference in Mumbai. Moderated by BT's
Associate Editor ,
the panel comprised Nasscom's Chairman Phiroz Vandrevala; Som Mittal,
Vice Chairman, Nasscom, and President & CEO, Digital GlobalSoft;
Kiran Karnik, President, Nasscom; Noshir Kaka, Principal, McKinsey
& Co.; Mike Dodd, Vice President, Giga Group; Nandan Nilekani,
MD, Infosys; and Alfred Elbrick, MD (Technology and Investment Banking),
Deutsche Bank (London). Excerpts from the exclusive brainstorming
BT: Welcome to you all and thanks for making
it to the BT-Nasscom Round Table. You'll all agree that we are going
through some challenging times and I need not go into the reasons.
But instead let's start by getting a grip on really how bad the
Phiroz Vandrevala: The reality is that
as an industry we are projecting a 30 per cent growth for the year
that is a combination of everything we do in this business-it, it-enabled
services, and others. So, if you look at the pack and take two simple
dividing lines, which is it and it-enabled services, you will perhaps
witness an 18-20 per cent growth in it and a 70 per cent growth
in it-enabled services. That blended will give you the 30 per cent
growth. This is a fact and not fiction. And a large part of that
growth rate is being fuelled by the top five it companies in India.
The top five will be in excess of the 30-35 per cent, some companies
in the middle will be close to 18-20 per cent, and some of the smaller
and very focussed companies will show some growth. So if we are
looking at some 800 constituents, nearly 700 will show marginal
or even negative growth.
|Phiroz Vandrevala: "The real value
that we are creating will be in the offshore business. And that
is where the sustainable future is for us."
|Som Mittal: "(Sustaining growth)
is not about scale alone; it's about how deep and long your
relationship is with your clienhts."
|Kiran Karnik: "Obviously, there
are some constraints, but we need to look at what we can do
in terms of pushing ahead in the domestic market."
BT: So are we looking at a shake-out kind
of a scenario?
Noshir Kaka, Principal, McKinsey: We
are clearly seeing a polarisation, but what you termed as a shakeout,
I would rephrase it as differentiation. If the 700-odd companies
that you mentioned continued to play the same game, i.e., generic
onsite-led staff supplementation largely followed by some modest
offshore projects, then you will see the negative growth. I think
the intent should be to create newer opportunities. You need to
change the focus of what you are doing and how you are doing it.
If you do that then there are certainly some viable and sustainable
strategies for smaller companies to grow in India.
Mike Dodd: I think there will be some
consolidation, which we have seen in the markets elsewhere. That
is simply the sign of a maturing market. Going back to the growth
area, I think we've got to be very careful not to snatch defeat
from the jaws of victory, so to speak. There is still much that
is extremely positive. I emphasise, extremely positive. Yes, there
has been a reality injection. The dotcom bubble burst. But the basic
accounting and mathematics rules will not change. The fundamental
positive issues should be on top of the agenda.
Som Mittal: It's just been around four
quarters and we shouldn't spell doom. I think everybody, whether
big or small, has been impacted. But it's not about scale alone,
it's about how deep your relationships are with your clients. The
big players had longer and deeper relationships and had annuity
business that continues, whereas the small and mid-size companies
who do project-based work have been affected.
Nandan Nilekani: Given the present economic
scenario, the Indian industry has done extremely well. At the same
time, we should not get complacent, as the competitive challenges
of the future are quite different. All of us have to come up with
strategies, big or small.
Vandrevala: Looking at the long term,
the important statistic coming out of the results of the last three
quarters is fantastic growth that has taken place as far as the
off-shore business is concerned. As long as we are revenue-led and
revenue-measured, the real value that we are creating for the country
will be in the offshore business. And that is where the sustainable
future is for us.
BT: And that sustainable future also involves
looking at new opportunities, re-inventing oneself?
Elbrick: Before we move on to that, I
would love to say something. I did a reflective sort of a poll on
the round table last year. I remember Dewang was extremely bullish.
Phiroz emphasised that maintenance of legacy systems is not going
to go away as a business. The big companies would decline in a changing
environment and the small companies would suffer. I think that has
happened. But having said that, even today the opportunity is as
great as it's ever been. The Indian component of the overall industry
is most nimble.
BT: Geographically, where are the opportunities
for the software industry, now that the US is not as attractive
as it used to be?
|Mike Dodd: "The basic accounting
and mathematics rules will notchange. The fundamental positive
issues should be on top of the agenda."
|Alfred Elbrick: "Even today the
opportunity is as great as it has ever been. The Indian component
of the overall industry is most nimble."
Nilekani: I think Europe is emerging
as a very attractive opportunity. Japan, because of its stagnant
economy for the last 10 years, doesn't have the same momentum. But,
there are opportunities to be explored. Asia looks very interesting.
But I think there is opportunity all over. All said and done, you
can't ignore the United States market. It is still growing. It still
spends the highest percentage of its gross domestic product on technology.
Kiran Karnik: I think we need to look
at what we can do in terms of pushing ahead in the domestic market.
Obviously, there are some constraints.
BT: That's a good point. What do we do in
the Indian market?
Kaka: There are two or three things that
could make the market take off. Some of which are the initiatives
that the government can take such as hiking its it spend, and pushing
ahead with digital signatures that will give a boost to e-commerce.
On the industry side, there needs to be more emphasis on vernacular
content and local language software.
Mittal: In the couple of years there
was a resource constraint and every resource we had was more valuable
in the export market because realisations were better. Now that
there is availability, (focusing on India) is the solution for smaller
Vandrevala: On Europe, the other important
thing you must understand, as Nandan was saying, is that the whole
business process in Europe is changing. Large corporations in Europe
have understood that they will survive only if they are globally
competitive. And in Japan, we need one large marquee deal of around
$70-80 million. Then I'm willing to bet that within 18 months there
will be more deals.
BT: Who are you betting on then for that
Vandrevala: Chances are that it will
be one of our bigger companies.
Elbrick: Wipro's latest deal in the
UK and Infosys' deal with the National Health Service there-these
are the trophy deals that will have a remarkable impact on the ongoing
businesses in that region.
|Nandan Nilekani: "Give the present
economic scenario, the Indian industry has done extremely well.
At the same time, we should not get complacent. All of us have
to come up with strategies, big or small."
|Noshir Kaka: "The intent should
be to create newer opportunities. If you do that then there
are certainly some viable and sustainable strategies for smaller
Kaka: There are different ways to enter
and play in a market. We've used the offshore option quite effectively
in the English-speaking areas. There are better ways or as effective
ways to do that. For example, in Japan, we know that China and Japan
are very close and a lot of companies are setting up bases in China
to serve the Japanese market. So Indian companies should do something
proactive to enter a region like China or Eastern Europe.
Nilekani: The not-so-good news is that
bigger US or Euro-centric players have no choice but to build offshore
capability in their delivery. So, they will have to come here, and
that will mean that the thing that gave us differentiation in the
market is liable to be appropriated by the others.
BT: But is being local still an advantage?
Vandrevala: At the entry level, yes.
Today what's happening in BPO (business process outsourcing) is
a great example. Everyone who is coming into the information technology-enabled
services space is coming on the cost bandwagon. But now, when we
look at the actual results achieved by the likes of British Telecom
or British Airways, there is an increase in productivity of between
60 per cent and 70 per cent.
Kaka: This is an important point. It's
not about costs alone, but availability, production efficiency,
and quality. Now we'll see a (third) phase where companies will
look at India as a platform of growth. GE is a classic example.
BT: A quick word on competition. What countries
can do what we are doing, better and cheaper?
Vandrevala: Countries that could approach
us in a guerrilla fashion could be many. Philippines or one of the
CIS (Commonwealth of Independent States) countries. But if you look
at scalability, China is the only country that comes up.
Nilekani: Each company has to develop
its own view on China, whether it poses a threat or is an opportunity.
We've chosen to look at China as an opportunity. We look at it as
a potential development resource centre.
BT: Som, would you go to China?
Mittal: I think we don't have the right
size at the moment. But a lot of Asian countries are trying to become
self-sufficient, and that should certainly be viewed as competition.
Vandrevala: As far as China is concerned,
the sheer servicing that you need to do to an international customer
drives a lot of companies. If today I'm servicing JP Morgan, or
Citi, or GE, they are saying ''hey, chum, you are not servicing
us in China''. So some companies may be drawn into China simply
because of the fact that you need to service your global clients
BT: There is a lot of talk about domain
expertise as well. What domains are best suited for the kind of
expertise that is available in India?
Vandrevala: Traditionally, if you do
an analysis of the industry verticals, almost 50 per cent of what
this country does is in the banking and financial services sector.
So that emerges as the domain in which significant amount of work
is being done by some of our companies. The customer end of telecom
is likely to be another area in which there is a significant amount
of leveraging skills that we've built.
But on the product side, my belief is that
it will be many years before an Indian company comes out with a
very large volume, low-priced product because the name of the game
there is marketing and distribution. Even Microsoft has to go out
and spend a billion dollars on a product launch. So when we have
a billion dollar Indian company, we may see a $20-million launch.
BT: A quick word on consolidation in the
Nilekani: There are different kinds
of acquisitions that are possible, but cross-border acquisitions
could be important for our company because we feel we need things
at the front-end that will make our story fuller, and we need to
do that rapidly. At the same time, the acquisitions we go in for
would have to be digestible.
Mittal: Also, a lot of small and medium
companies feel the lack of a consolidated front-end so they can
Elbrick: Inevitably, there is going
to be some pressure from venture capital funds on these small companies
to have a viable scale of operations where they are better off owning
20 per cent of their company rather than the whole of it.
BT: One last word on the 30 per cent target
for this year. Do you see that happening?
Vandrevala: Year-on-year, we are growing
31 per cent. We will be around 30 per cent. Basically, we believe
we have a sustainable growth model and that's something to feel