The Western markets are throwing up one poser after another for Indian IT services sector, which so far has been used to achieving strong growth targets with practiced ease. As it is, there is still no fix in sight for Euro zone and, in the US ahead of the elections, the anti-outsourcing sentiments are running high.
But Mr Arvind Thakur, CEO of NIIT Technologies Ltd, believes that IT spends on ‘running the business' and transformation deals are relatively safe. However, where ‘discretionary' spends are concerned, it is the business value that will drive decision-making. Business Line caught up with Mr Thakur to discuss the macro economic challenges and the road ahead. Excerpts:
How are the IT spends shaping up for 2012?
I think they (clients) are still in the process of evaluating the environment. I don't think there will be any significant budget cuts. Customers will look at budgets from a slightly different perspective. There is an element where spends are necessary, stuff that keep the business running like infrastructure and application maintenance. So this ‘lights-on' IT budget, is secure. There is another element which has to do with taking forward the transformation programme. These pertain to redoing platforms and technology refreshes. That, too, will continue. In the third element, which is `discretionary', it is the business value which will be the deciding factor. So, there is an element that will be driven by how a business feels about the spend. Those discretionary spends, where businesses do not see immediate value, could be impacted. If at all there is a change (in IT budget), it will be in discretionary spends.
What is happening in Euro zone? Will macro concerns prompt cut backs in outsourcing?
The concern is not only in Europe, it is global. The situation in Europe is something, which, if not managed well, can have a contagion effect across the globe. Problems of Europe are not just localised to Europe, but can have far reaching implications across the world. But as far as we are concerned, there is also an opportunity. That is providing ‘more for less'.
People in Europe, particularly Continental Europe, will be more cautious about spends. It is also a region which does a lot of outsourcing but has limited offshoring - that is an opportunity. So where improving cost structure and tech spends are concerned, Europe has a lever in form of increasing offshoring component of outsourcing.
As a company, what strategy have you adopted to deal with global risks?
Looking specifically at NIIT Technologies, you will notice that our business is fairly balanced across geographies. About 37 per cent of our revenue comes from the US, close to 39 per cent from EMEA (Europe, Middle East and Africa) and the balance from Asia. Even in EMEA, we are seeing growth in the UK and the Middle East - so we are hedged significantly. Asia is, of course, a market where you will continue to see growth. So in terms of our geographic mix, our risks are quite mitigated.
Anti-outsourcing sentiments have been running high in the US ahead of the elections? Will it impact customer decision-making in the coming days?
It is not anything new. These sentiments have got whipped-up at different points in time. However, we need to understand that the US is the largest economy, which has a dominant say by its businesses. At the same time, one has to be mindful of the overall sentiments. If the political environment moves towards a situation where they put in ‘non-tariff barriers', then you have to proactively start addressing the situation, even as Government and industry bodies try to reason out and prevent such protectionist measures.
And how do you do that…
The solution is to do more activity onsite (in the US) with local people. Companies in India have already started doing that. For NIIT Technologies, in our onsite workforce, about 34 per cent are locals. We have invested in creating near-shore facility in the US (Augusta), which can provide cost benefits. Of course, there is the issue of sentiments that has to be dealt with, but still the driver in that environment and economy is going to be economic benefits that accrue to companies.
So we are not worried in terms of business prospects.
moumita@thehindu.co.in