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Source: blThe Hindu Business Line (http://www.blonnet.com/2005/09/26/stories/2005092601290200.htm)
'You have to get over this notion we can't grow' — To beat us, MNCs will have to change the way they do business, says Infosys CFO Mr Mohan Das Pai
Krishnan ThiagarajanVishwanath Kulkarni
Bangalore
,
Sept 25
THE going seems good for the Indian IT software industry. But then, never is fear of bad news more pronounced than when the good news is aplenty. Can the Indian biggies continue to add manpower and grow as they have done so far? Won't the IBMs and the Accentures of the world beat them at the Indians' own game - the offshore game, that is? Is there some sign of a downturn in the offing in Europe and even in the US markets?
Business Line thought this a good time to meet Mr Mohan Das Pai, Chief Financial Officer, Infosys Technologies.
Bagging large deals matters. Have Indian companies worked on enough such deals?
You have to break into the club. Once you are in a couple of large deals, you are there in the picture. Credibility is then established. And now, please remember that there are three players who could be $2 billion-plus in India. These are not small companies, each with more than 50,000 people.
What is the point at which we could see some structural changes in these big companies? Small companies experience this when they reach a certain size and are swamped by the big companies. How about the biggies themselves?
Market is going to the offshore model. It is playing to our strength. So, we are not fighting against the model. The next key issue is that we have our strategies right about moving up the value chain and we are now executing it well. Third, the clients like our proposition.
A couple of years ago, people talked about acquiring assets and people from the clients' books. What is the talk now?
That was the model then. We went and told our clients that that model does not work to their advantage. If they do that, then they are tied to the vendor and at his mercy over several years. So, we advocated the breaking up of a deal and bringing in multi-vendors. More and more people are accepting this.
Then does it become pure volume-based business? Then the scope for pricing-upsides is very low, because of competition or volume discounts or even because that power has passed onto the customer.
No. So long as there are very large players in the market, there is a pricing umbrella that is maintained. But if offshore becomes a very large part of business, then this pricing umbrella of large players does not exist, and then pricing could be challenged.
Look at Taiwanese manufacturers. They had a pricing umbrella. The chip manufacturers in the West disappeared and the industry migrated to Taiwan and Asia. Then it became a fight for market share. Now, China is the new kid on the block and price has become very important in the fight. Price volatility is high.
In services, so long as price umbrella remains and it doesn't weather too much, we are quite okay.
When do you think this would change, with the pace of change we are witnessing? Also, clients are now asking if the entire work could not be done offshore.
That would remain for a few more years.
Looking at the deals you have struck, do you think your deal wins were slightly lower than that of competition, say Wipro or Satyam. You do have significant numbers but has pace of addition been lower?
No. I think we have added at a pace much better than most people. It also depends on how you approach this issue. One could sign a deal and say that I could expect to get $20 million-30 million in the next four years. But, unless there is a guarantee that you are going to do X amount of business, there is no commitment from the client's side. In our case, we have five clients with more than $50 million revenues per year. We could technically say that we have five, $250 million five-year deals! Because, technically, the business is coming... . But we can't go to the market and make that statement because there is no document from the client that guarantees that.
As deal sizes get smaller, is it getting more and more specialised either as verticals or horizontals? The regular work might come to the pure play players, but there are small players who have a niche capability.
There have always been specialised players. But it's not a scaleable business. It's like consulting. The key issue is that you can't become a specialist in very many areas.
But, how far can you keep adding manpower resources? Manpower and infrastructure related to it could be challenges.
I think we should get over this notion that you can't grow. Look at the largest player in the world - it has 2,00,000 people. The second largest is 1,30,000. Likewise, we deliver services in 30 countries.
What is your take on the action around you from global competition?
MNCs have reached a point where they have no choice but to follow the (offshore) model - it is disruptive. Global delivery model or GDM has become ubiquitousQuality standards are high and so, people in the business are coming here to test shop. The difference between them and us is that we have a GDM. This gives us a unique advantage. Some of them are coming to India in a big manner. But coming to India does not merely mean putting up a few people here - there are a lot of management techniques there, and a lot of human and quality issues there. We have been here long enough in the business to perfect response to those issues.
Most of your global competitors are multi-cultural and in multiple locations.
It's not just that but the way the model works. For example, our people here are in touch with the customer directly. They talk to him and deliver the goods directly to the customer. So there is a direct point of contact. Onsite and offshore folks work as a seamless team. They are very sure about what they are doing and where they are going. To reach that stage, you have to change the way you do your business. That's key.
With newer services contributing increasing percentages of revenues, there are clear issues of domain expertise and the nature of client relationships. Do you think that GDM is still as disruptive as it was two years ago?
Yes, it is. For, the largest quantum of growth globally in terms of people is going to be here. It is easy to mistake revenues for growth but you can't ignore the people involved. For example, the revenues you would generate from India compared to that with the same number of people outside India is about 30-40 per cent. If you focus only on revenue figures, the impact is smaller. Offshore exports last year went up from $12 billion to $17 billion last year. That's $5 billion additional revenue and meant that 2,00,000 more people were employed. The revenue alone is small in a global context. The people addition number compared to numbers added globally is 20-25 per cent.
(With inputs from Bharat Kumar)
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