The Hindu Business Line : Sootaspeak

eWorld caught up with Ashok Soota, Chairman and Managing Director, MindTree Consulting, to get a macro perspective on trends shaping the mid-cap IT-services space. As an industry veteran, his insightful views will help peers to take stock of their future strategies. Excerpts:

On consolidation in the mid-cap space

There are going to be certain companies who are going to say, let us give size a little more throw through acquisitions. To the extent that consolidation is the nature of the game globally, it will happen in India too. Will this lead to a huge deluge of acquisitions? I do not think so.

In the end, in strategy, size is only important so far. If you think that through a process of consolidation, you are going to get larger and that is better, it does not mean anything. You need to always ask: is it going to add to a genuine new domain specialisation or will we look at any horizontal specialisation that brings $20 million in revenues to us, the way we did with Linc Software (acquired recently by MindTree for AS 400 specialist skills required by certain customer/s). We will not do that. To me, to look at M&A primarily for the purpose of size is not strategic. You have to look at it to help open new markets or new expertise that you cannot generate on your own.

....how the mid-sized services space will change

The profile of the services industry may not change significantly over a period of time, but the companies within that profile will undergo a change. There are a whole range of companies that are coming in. There is going to be a steady number of Tier II players. This is not like the auto business, where the top three players are going to dominate the whole market and have 80 per cent market share. There will be space for everybody, they will be in different band of percentage points in market share and there will be a little more churn among companies among Tier II, III and IV slots. A few will drop out and few will come in.

....on productivity gains through automation

Companies will have to change the linearity of the model as far as possible. You do not get into the products business per se, but get into frameworks which bring a certain degree of repeatability of sales and so on.

Creating those frameworks and the environment into which you can get the replicable solutions is the real challenge. You need certain knowledge through which you can create those building blocks and then you see how you can replicate them into different industries or solutions or have mechanisms in-house so that people are using the IP (Intellectual Property) that has been created. First of all, the industry needs to capture the knowledge. For which we need the tools or a software repository like an open internal system, which is what we have launched. Second, some of the things can be used to significantly improve, in effect, your productivity when you go to the market. You do that through repeat sales in a certain domain or even horizontal sales that lend themselves to replicability.

Can wage inflation continue indefinitely...

The MNC players have been a little aggressive in terms of some of their salary increases. And large Indian players, since they cannot lose their employees, have been forced to play along. It is a vicious cycle. Somebody has to take the lead and say that we have to keep a lid on our costs. In the end, the market has to cost-correct. That is the difference between a market run-economy and one dictated by bureaucracy. I do not think this can go on infinitely. I see it something like a 30-month cycle of which we are already through maybe, 18 months. It then should begin to balance out and get into a steady state thereafter.

maverick@thehindu.co.in

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