The Hindu Business Line : `Keep the innovation going'

Anyone who has met and interacted with Sunil Mehta will testify to his humility and soft-spoken nature. He never allowed his influential position (as Vice-President of Nasscom) or his deep industry knowledge (an astute observer of technology and business trends) to interfere with the simplicity and grace which he radiated with people around him and the media.

This archetypal `behind the scenes' man was heading the comprehensive research efforts of Nasscom, elevating the Nasscom Strategic Review 2006 (and the earlier years) on `The IT Industry in India' to gospel for analysts and media persons alike.

As Kiran Karnik, Chairman, Nasscom, poignantly noted in an e-mail to the media, "He was, in his typically understated way, mentor and guide to many in Nasscom; a person to bounce ideas off; someone to share one's occasional grouses with - but never an overbearing `boss'... .Within India, he earned great respect for the very professional way he developed Nasscom's research work and brought complete credibility to it. Today, if Nasscom is considered the best source for any data on the Indian IT industry, we owe this to Sunil."

eWorld caught up with Sunil Mehta a couple of months ago when he had come to Chennai to address the media on an education seminar on `Engineering Services'.

Following his untimely demise, we pay tribute to a wonderful person, in his own words.

What accounts for the underlying streak of bullishness in the IT sector and a sea change in market sentiment over the past few months, with both Infosys and Cognizant revising their guidance upwards in a big way?

From our industry perspective, we are broadly on target in our growth projections. The overall IT spending has been robust and the share of offshore has gone up. It is difficult to say if anything in the demand environment has changed.

I do not think that what Infosys has guided is an across-the-board kind of thing with a sudden upsurge in demand. A few companies will record above the industry average kind of growth. I would suspect it has a lot to do with their client mining capabilities. Today, a $50-million customer may not have even been a $1 million three years ago. So, their ability to get more out of a single organisation has improved dramatically.

If the slowdown scenario does play out, do you think it will affect product revenues first, followed by discretionary spends on development and finally hit maintenance spends or will it be dramatically different this time around?

In earlier instances also, we have found that discretionary spends do get affected. However, in 2000, application development and maintenance used to account for 95 per cent of IT spends, but that has now gone down to 60 per cent or below. With the dependence coming down and integrated offerings going up, it might cushion some of the decline.

Do you think new service offerings such as infrastructure management will be far more at risk than the bread and butter application development/maintenance?

From a service line perspective, I do not think so. From a geography perspective, the US, which used to be a dominant contributor, is no longer so. It is slowly being replaced by Europe.

From the vertical industry factor also, newer verticals such as utilities or retail have emerged to complement the contribution of BFSI or telecom. So, the risk mitigators appear to be in place for the industry.

In your view, what influence have multinationals such as IBM or Accenture had on the overall industry dynamics?

The first thing is the acceptance that offshoring has gone mainstream. One clear area to my mind is that they (multinationals) have dampened prices. If they had not been there, the Indian players would have enjoyed much better prices.

For Indian companies, what is the key variable working in their favour?

I think scale economies are clearly working in our favour. If a company decides that it wants to offshore, it will be India for the next three to five years. The only comparable country is China, but they have not been able to achieve the kind of scale that can make a difference so far. You can talk about countries in Eastern Europe or Vietnam or Russia, but it will probably be only good to talk about.

What do you think are the key challenges that Indian companies need to gear up for?

The industry is in a good comfort zone, growing in the 25-35 per cent band, but it will have to get more innovative. I fear that some parts of this industry are already getting commoditised. So, the industry really has to get a good handle on supply side issues and business models will have to undergo changes more often than in the past.

With several mid-sized companies growing lower than the industry average, is the industry ripe for consolidation?

I think there is a misperception that a lot of mid-sized companies should be up for grabs. I have always believed that a company's performance is a function of how well it is managed rather than being a function of whether it is a big or a small company. Though valuation is an important element, whether promoters want to hang up their boots after they sell out or stay in control plays an important part in this decision. So, it is these kind of factors rather than pure economics that will decide whether consolidation happens in the industry or not.

Is the stage set for two mid-sized Indian companies to merge?

I think that two Indian services companies may find it difficult to get together. It is too risky a decision. More so, when there are several $15-20 million companies that can be snapped overseas. If you acquire four or five of them, you can position yourself as a $60-100 million company, which can also attract venture funding of any kind that you may want. This, I think, is one of the factors holding back acquisitions in the industry.

Will companies such as Cap Gemini and Atos Origin make acquisitions that can shake up the industry?

For companies of that kind, there appears to be no other option. Although Indian companies claim that they have perfected global delivery and all that, I am convinced that it is not that difficult for multinational companies to catch up.

maverick@thehindu.co.in