Ashok Soota, chairman and Managing Director of 10-year old MindTree, perhaps the most promising mid-size software firm (2007-08 turnover $191 million) in the country, looks at the current scene from his part of the industry space. He warns that since it is the silent period, he will remain circumspect, but through his usual precise articulation manages to convey a lot. Excerpts from his conversation with Subir Roy:
How serious is the slowdown in Indian IT?
If you have a slowdown which is affecting the world, it can’t not affect some industries. There will be a decline in growth rates but this is nowhere near the pain that you are going to see in sectors like auto where you are talking of negative growth. If we assume a broad ballpark figure of 20 per cent growth, in a year when the first half obviously grew quite well, next year growth will be slower. Maybe it will drop to 12-15 per cent. With this, I do not think there will be anything like layoffs.
What is the staffing scenario?
I don’t see layoffs, people not honouring campus commitments. But the pain will be to the next year’s campus batches. For them people will hesitate to make fresh commitments. Obviously, the attrition rates will also slow down, again leading to fewer vacancies being created for new entrants.
When would you see the clouds lifting?
My personal belief is we are close to a bottom. Then markets will begin to lead the economy, as distinct from the current when the markets have declined further than the economy. So, maybe latter half of 2009? It will certainly not happen in the first half of the year. That will only be the beginning. Then the recovery will need to gather momentum.
What must be the strategy to get out of this and get back to the top again?
For Indian IT, like for everything else, this may be a period when assets are available at remarkably good prices. It may actually be a good time to go out and look for acquisitions in a situation when some have to make a distress sale. To grasp this opportunity you need to retain your own liquidity.
What new verticals do you see as opportunities?
As Obama comes on the US will see an alternate energy economy — something so massive and huge which can play a solid part in not only removing the dependence on fossil fuels, but also creating a completely new segment of economy and therefore contributing to taking things out of depression. India needs to be looking at this to find IT solutions. Another area is green IT. We need to play our role in contributing towards improving the environment. Post-Bush you will see a lot of focus on that virtually in every part of the world. In addition, some of the other sectors less impacted will continue to grow like entertainment. Government will clearly be a large spender globally.
In going up the value chain, what next?
The most important is breaking the linearity of revenue and people in a part of the business that we do. Then looking at new areas like cloud computing, which is partly shared services and partly the delivery mechanism which would be software as a service, through those resources and platforms that are ‘in the cloud’ that get delivered to a person through a service. And then software as a service on its own.
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Is there an opportunity for us in those markets where businesses are having to look intensively at costs?
There is always an increase in offshoring when there is greater pressure to reduce costs. None of our major customers have said we have to cut down on our total offshoring. There may be a hold on a project here or a postponement of another there, but they are seeking to increase their total extent of offshoring. And they are still finding that India is the number one choice. But if terrorism became a concern then that could be a setback.
It is said that the global vendors are developing their India capabilities faster than Indian firms are developing their consulting capabilities.
I am surprised that it took the MNCs that long to get here. It is much easier to develop a backend delivery capability than a front end consulting capability. Given that, we have done pretty well. It is a challenge and whoever succeeds best in it five or ten years from now would have done a better job and succeeded.
The conventional wisdom is that in this scenario small and medium firms, MindTree’s space, will be hit harder.
I have always disagreed with that and it is certainly not applicable to MindTree. I think the bigger guys have more to fall, particularly in this scenario because the pain is with some of the larger players who were their largest customers. They would see a larger slowdown. The previous slowdowns have also shown that we at MindTree have been able to grow faster than the industry. It is critical how strong is your own organic engine and I don’t think that here midsize companies are worse off. I think they are better off.
Could you outline your immediate — six months to two years —agenda in MindTree?
Our definition of success is we must grow faster than the industry, a target of 25 per cent faster. Certainly we will be positive and expansionist.
MindTree seeks to be different in terms of employee relations and its position in society. Any fresh thoughts on that?
We have just got the top corporate governance award given by the vice-president through the Institute of Company Secretaries. To me it is perhaps the most important among all the recognitions we have got. It is the first time that a young company like ours has got the award. It’s the foundation on which everything is built, particularly today when the whole world is reeling from lack of proper corporate governance and I do not have to mention one of our leading players which has attracted so much of negativity towards itself.