The Hindu Business Line : ‘IT growth entering maturity phase’

You don’t normally expect case studies on ‘the Arctic Monkeys rock group and Hollywood actor Samuel L. Jackson’ in a book on outsourcing, but that’s what Mark Kobayashi-Hillary and Richard Sykes have done in Global Services: Moving to a Level Playing Field, from Viva ( www.vivagroupindia.com), as an Indian edition, with a foreword by Sir Howard Davies, Director of the London School of Ec onomics.

“A very approachable look at some of the ways technology and the globalisation of services is changing our lives, and it’s not a typical ‘dry’ read on outsourcing,” assures Kobayashi-Hillary ( www.markhillary.com), during the course of an e-mail interaction with eWorld, when he was recently in India, during the Nasscom summit.

“The interesting thing about Nasscom this year and last — as opposed to other years — is that the industry in India seems to have matured a great deal,” he adds. “There used to be a lot of tub-thumping at Nasscom, with the entire industry joining together to oppose some key issues or to lobby the Government. These days it is far more about the companies themselves and where they are headed.”

Excerpts from the interview, in which he airs his opinion on some of the issues top on the agenda of Indian IT (information technology) businesses.

Should the industry be worried about the US slowdown fears?

A lot of people have been talking about the potential issue of the western economic slowdown, particularly caused by the sub-prime banking crisis in the US. Of course economic conditions can be a cause for concern, but I don’t see this as a major issue for the Indian technology sector.

Why so?

First, it could, in fact, be an opportunity. Companies that have not yet explored offshoring — possibly smaller companies than we are used to — may look to it as a strategy now as a way of achieving ongoing cost certainty. That means there could well be a whole load of new opportunities for Indian tech companies. On the other hand, there are additional fundamentals that are important to note. Though margins have been damaged by the dollar/rupee rate, all the companies are still registering very strong growth.

Investors have been concerned and share prices have dipped, but through all these market concerns the companies are winning new clients and expanding their business. It is perhaps a sign of market maturity in India that investors express great concern at moving from very fat margins to margins that are only good. This is still an industry where money is being made and jobs are being created. There are very positive future signs. KPO (knowledge process outsourcing) is expanding from a concept we all debate to an area where there are genuine case studies and a history of success. This is a huge growth area for the Indian market because of the local experience of other forms of outsourcing.

The increase in size of the domestic market is also providing a welcome boost to the industry. In fact, there are many more positive signs at present than negative and I would say that the general outlook is for strong growth, but with a sense of maturity. We are not going to see the hyper-growth of the past, but this industry is becoming mature and responsible now and so it can grow in India and expand to new areas of services, building on the experience of the past.

Attrition, however, continues to worry the IT industry.

True. Attrition remains a concern throughout the industry and there are clearly several approaches being taken to resolve this.

At the Nasscom show, even luminaries such as Pramod Bhasin of Genpact were lamenting that with all the training and facilities provided, they still see people leave their company for very small salary increases. Ultimately it’s a question of supply and demand in the industry and the problem of all the companies chasing after a very small pool of experienced talent.

Naturally they will move on if the rewards are better elsewhere and everyone is free to do so – this is not bonded labour and lifetime loyalty cannot be expected – but with a larger pool of trained talent there will be more competition for each available job and a more natural approach to job changing for self improvement rather than job hopping for a few extra rupees.

We need to increase the supply of skilled and experienced people in the industry today.

The industry complains about the lack of employable graduates in good numbers because they lack soft skills. How do you suggest employability can be increased?

I can’t see any way out of this other than a root-and-branch restructuring of the Indian education system. The present system is too elitist and too focused on skills that are not related to the workforce. Even the elite schools — at the IIM and IIT level — are not really geared up for supporting the industry. They are in the fortunate position of being able to churn out highly intelligent graduates because the entry process is so tough that those kids are highly intelligent when they start at the school.

Many private sector companies, such as Steria and NIIT, are looking to create their own universities now so they can create their own stream of talent, which is great for them, but it’s not the answer for the whole of India.

And don’t forget, it’s not only the IT industry that is growing fast in India these days. The education system needs to be examined now with a view to supporting the growth of the nation over the next 50 years, ideally with suggestions on change from someone who is respected and does not have an axe to grind with the status quo.

Your take on the behaviour of stock markets with regard to IT companies.

It’s just natural market behaviour. The companies are seeing their margins squeezed, that affects future earning predictions, that affects valuations. It’s all basically a mathematical formula and the market is generally right, but it feels as if some human sentiments have been lost.

The market can’t expect hyper growth to continue forever, but we are still looking at healthy growth, good customer acquisition records, and strong development of new markets.

These tech firms are doing pretty well still. I’m no market analyst and in no position to give advice, but my own sentiment would be that it’s time to buy shares, not get concerned about the latest dip in value.

On policy directions for the industry.

The Government has effectively told the industry to grow up, the implication being that offering tax breaks to companies investing in areas such as BPO is only what infant industries do. I can understand the sentiment of the Government, but I would urge the Government to look again at what they are planning for the tech and services industry. It’s an area where international regions compete with each other for business and if the Indian Government thinks it is acting in a mature way by starting to demand more tax from the industry — compared to similar companies in other regions — then they will find a problem on their hands.

I think Nasscom has been proposing a responsible and mature debate on what level of perks are needed to maintain international competitiveness and the Government needs to listen to their call — it’s not about tax evasion, it’s about ensuring that the success already achieved by India in this industry can continue to grow.

dmurali@thehindu.co.in

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