Ness Technologies' Raviv Zoeller: Managing others' R&D out of India

R&d pros are the hit-men of the corporate world. CFOs, who used to run them close for this distinction in the pre-Fastow-and-Sullivan world, have now given up their firepower in favour of gilded respect. Circa 2004, the trend is to keep the Angels of Death tucked away in back offices in countries such as India where not too many people know what they are up to. Yet, not every company can afford to keep an army of Angels of Death on its rolls offshore. A mid-sized American or European it products company with (say) revenues in the region of $100 million (Rs 450 crore), is likely to be chary of venturing into a country such as India. Reason? The challenges involved in recruiting a workforce, managing an offshore development centre, and generally behaving like a multinational, which the said company isn't. Yet, these product companies are under constant pressure to launch new offerings without spending too many R&D dollars. "How we wish we had what it takes to go to India where there's high-quality, low-cost talent waiting to be hired," is a common refrain in these companies. So Raviv Zoeller would have us believe.

The 40-year-old is in Bangalore, India, every other month. The company he heads, Ness Technologies, (NSTC on NASDAQ) already boasts revenues of $222.2 million (Rs 999.9 crore) and a net profit of $9 million (Rs 40.5 crore) in the first nine months of this year, and much of this money comes from Zoeller's ability to translate the felt-deprivation of the companies described above into hard bucks. Thus, although Ness, like any other it services company, offers a "portfolio of solutions including system integration, application development, software and consulting, quality assurance, testing and training, and outsourcing", it is its "Managed Labs" concept that makes it unique. Ness, Zoeller explains, will create exclusive product development teams in India for it companies that cannot afford to do so on their own. "It is not a typical services model," he says. "Not too many companies will trust handing over their entire product development function to a third party; they will be worried about intellectual property." For the record, any IP that comes about in the course of Ness' work will rest with the customer. Some 17 companies including Business Objects, Portal Software, Capco, Chordiant, The Cobalt Group, and Inktomi have already found Ness' proposition attractive enough to sign up. "Earlier, only small and mid-sized companies used to take advantage of our model," says Zoeller. "Now, with a customer like the $1 billion-plus Business Objects, our model has been vindicated." The growing business has prompted Zoeller to look for acquisitions that can add to Ness' presence in India. The company has 1,000 people in Bangalore working on Managed Labs, and an additional 350 in Mumbai providing traditional it services to companies in the financial services and retail businesses. Indian companies such as Wipro and HCL Technologies also operate in the same space as Ness (although they call it technology services), but Zoeller would like to make a distinction between their 'services' model and his company's 'IP' one. Still, he is impressed by the colour of their money. "We wish we could replicate their 20 per cent-plus margins," he laughs. That'll take some doing.

-Venkatesha Babu

A Common Regulator?
Better, not centralised, regulation is what investors need.

FM Chidambaram: All for a super regulator

Last month, at a function organised to celebrate the 10th anniversary of the National Stock Exchange (NSE), Finance Minister P. Chidambaram mooted an idea that's proving to be controversial. Chidambaram said that there should be one regulator for both the stock market and commodities market. At present, the stock market in India is overseen by the Securities and Exchange Board of India (SEBI) and the commodities market is the domain of the Forward Markets Commission (FMC). The current regulatory system is what the us follows too, and the one proposed by the FM is already prevalent in the UK.

Why merge the regulators? The argument offered by those in favour of it is that it will put all trades on a common platform, thereby making it easy for investors to hedge between different categories of investments, besides helping the regulator monitor the trades more effectively. Can't the debate be settled by looking at which of the two models (the UK's or the US') is more successful? In theory, yes, but in practice, it's impossible. Consider one simple problem with this who's-better yardstick. Fewer instances of market wrongdoings need not necessarily mean the regulator is very effective. In fact, the truth could be just the opposite, that the regulator is ineffective at catching frauds.

In India, where regulation is a relatively recent phenomenon, the issue is not whether one regulator is better than two different ones. Rather, it's a question of effective regulation per se, and how to arm the regulators to do a better job. Take SEBI, for instance. It has the task of monitoring 23 stock exchanges, 5,000-plus listed companies, 9,368 brokers, 37 asset management companies, 11 custodians of securities and 54 venture funds. The FMC, on its part, has to monitor three national exchanges, including NCDEX, NMCE and MCX, besides 20 regional exchanges, which clock an average trading volume of over Rs 2,000 crore a day. The FMC, which has been without a Chairman since the middle of 2003, needs to get competent staff on board to be effective. Says G.V. Ramakrishna, former Chairman of SEBI: "The functioning of SEBI needs to be improved before it can get into regulating commodities markets." After all, two different regulators are better than one messy one.

-Roshni Jayakar

ORACLE
Guess The GDP

Four corporate economists make their call on the GDP growth for 2004-05.

Ajit Ranade
Chief Economist, Aditya Birla Group
Projection: 6.3 per cent
Why: "The less-than expected rainfall means growth will be lower at 6.3 per cent than the earlier projected 7 per cent."

Rajiv Verma
Chief Economist, DSP Merrill Lynch
Projection: 6.2 per cent
Why: "I expect a 7.4 per cent growth in industrial production and 8.4 per cent growth in services, and a contraction to 0.5 per cent in agriculture."

Abheek Barua
Chief Economist, ABN Amro Bank
Projection: 6.2 per cent
Why: "The flattish agricultural growth of anywhere between zero and 0.4 per cent is the main reason for my lower projection of 6.2 per cent."

Siddhartha Roy
Chief Economist, Tata Group
Projection: 6 - 6.5 per cent
Why: "Despite the negative or neutral growth in agriculture, positive industrial activity and the growing services sector will ensure a 6 to 6.5 per cent GDP growth."

-Ashish Gupta

Infosys Inc.
Soon, it could be majority foreign owned.

Infosys' Nandan Nilekani: Call him Nandan "Nick" Nilekani

How do you get foreigners to start loving offshoring? One good way would be to increase their stake in the company that's doing the offshored work. That may not be the central idea behind Infosys Technologies' second offering of shares to American depositors, but that may well be its unintended consequence. Infosys already has 21.2 million shares, or 7.9 per cent of its total equity, listed on NASDAQ and the second ads offering, announced on November 8, will bump the number up by another 16 million (13.9 per cent of total equity). Already, foreign ownership in Infosys amounts to 49.20 per cent, and following the second ads (to be completed by buying shares from local investors and not increasing the number of outstanding shares), foreign investors will own 55.20 per cent of Infosys. That's a clear majority of foreign ownership. So how "Indian" will Infosys, or others in the table above, be?

-Venkatesha Babu

Still In The Woods
BPL's rough patch continues.

BPL Chairman Ajit Nambiar: Still in defensive mode

One newspaper may have gone ahead and printed details about BPL-Sanyo, the 50:50 JV that the BPL Group has transferred its television business to, looking to raise $30 million (Rs 135 crore) to fund its growth, and while that story is true, the between-the-lines message that things are back to normal at the Bangalore-based group isn't. Thus, although the Corporate Debt Restructuring tribunal has cleared the transfer of the television business to the new joint venture much to the relief of Chairman Ajit Nambiar, some of the constituent banks are still not happy about the debt restructuring formula other banks, including ICICI Bank, have arrived at. The matter will probably go to the courts now, with one set of lenders arrayed against another. As for the television business, it has lost an opportunity to leverage the festive season to launch a marketing and advertising blitzkrieg, as mentioned by Nambiar recently (See Can BPL Claw Its Way Back, Business Today, September 12). The only good news for the group has been the buzz about the Godrej Group's interest in picking up a stake in BPL's compressor manufacturing venture, BPL Engineering.

-Venkatesha Babu

The Lawyer & The Economist
India's FM and the Deputy Chairman of its Planning Commission have embarked on a turf war.

One day in early November, India's ministry of Finance announced that it was not in favour of using $10 billion (Rs 45,000 crore) of India's foreign exchange reserves of $121 billion or Rs 5,44,500 crore (at the end of October) to import capital goods to aid the development of the country's infrastructure, a suggestion made by the Planning Commission. It wasn't a manifestation of the NIH (not invented here) syndrome that prompted this, ministry officials hasten to explain, but prudent policy: Mechanisms such as the India Development Initiative, which can take care of the funding needs of infrastructure projects, already exist; then, if the ministry were to sanction $10 billion to buy capital goods that typically constitute a fraction of the total cost of infrastructure projects, it will also have to provide for the latter. This last would scotch the Finance Minister's chance of meeting the targets he has set for himself in terms of the country's fiscal and revenue deficit, numbers in keeping with the belt-tightening philosophy of the Fiscal Responsibility and Budget Management Act.

It is unlikely that the Planning Commission's proposal and the Ministry of Finance's disposal will be seen as a routine interaction between two arms of the government. Indeed, it is already being seen as a war over turf, involving two of the best-known faces in this government, Finance Minister Palaniappan Chidambaram and Deputy Chairman of the Planning Commission Montek Singh Ahluwalia.

The two are not strangers to each other, having worked closely together when Chidambaram was Finance Minister in the United Front Government between 1996 and 1998 and Ahluwalia, Finance Secretary in the Ministry of Finance. For two heady years, the duo scripted the government's annual statement of accounts and policy wish-list (the Union Budget), including the Dream Budget of 1997-98, and the economy galloped to a 7 per cent plus growth rate.

The problem is, Ahluwalia has also worked in the same capacity with now Prime Minister Manmohan Singh when he was Finance Minister in the Narasimha Rao-led Congress Government between 1991 and 1996. Singh and Ahluwalia are both economists, Chidambaram is a lawyer and while there is no animosity between the professions, it would be safe to assume that two economists get along better than an economist and a lawyer. Not surprisingly, Singh would like Ahluwalia to make the Planning Commission the monitoring and delivery arm of this government's policy initiatives, has already requested him to oversee all major infrastructure projects, put him in charge of overhauling the regulatory framework across sectors, and actually instructed all ministries to get any proposal they are forwarding to the Prime Minister's Office (PMO), which could have an economic impact, vetted by the Planning Commission. "All economic decisions of the PMO are first vetted by Montek before they go to the Union Cabinet for approval," says a bureaucrat who knows how things work at the PMO. The interplay of personal dynamics between these three good men, all focussed on doing the right thing by the country from an economic point of view, can only get more intense. PM Singh has taken to making significant economic pronouncements at home and on his visits abroad; the Planning Commission's Deputy Chair-person (that's equivalent to a Minister of State) Ahluwalia is keen to fulfil Singh's vision; and fm Chidambaram looks hemmed in between a very hands-on PM and a very results-oriented former lieutenant.

-Ashish Gupta