'Infosys' founders had advantages'

Q&A: Mastek CMD Ashank Desai

Ashank Desai

The figures are stark. The Mumbai-based Mastek was launched a year or so after Infosys Technologies in the early 1980s. Infosys is now a Rs 4,760.89 crore company (March 2004), Mastek a Rs 379.39 crore one (June 2003). The Bangalore-based IT giant made a net profit of Rs 1,243.47 crore, the Mumbai-based Mastek Rs 50.31 crore. What explains the huge gap between the two IT companies?

In a wide-ranging interview, Mastek chairman and managing director Ashank Desai, one of the founders of the National Association of Software and Service Companies, says that Mastek focused on the domestic market and on products during the first few years of its existence. Excerpts:

Infosys started a year before Mastek but there is a huge gap between Mastek and Infosys.

Infosys' founders had some advantages. They worked at an export company earlier and they were clear that they would focus only on exports. We started on a clean slate, didn't know any CIOs, had no contacts in the US. We started in the domestic market for the first eight years.

In 1992, we were both about Rs 15 crore in revenue. The key difference, however, was that Infosys' Rs 15 crore came from exports. For Mastek, Rs 12 crore came from the domestic market. So in those 10 years Infosys built sufficient contacts and expertise, and built an organisation focused on exports. We were successful "� in fact, Narayana Murthy even says 'I admire you, you grew in the domestic market which is very tough.' But the domestic market was not growing as fast as the export market.

Secondly, we spent a lot of time and money in building enterprise resource planning (ERP) products. We got venture capital, invested our own money from profits. It was a very ambitious experiment. If it had succeeded it would have become big. SAP and Baan were not in India then. But that market became commoditised. Till 1996, almost 30 per cent of our revenue came from the domestic market.

What is Mastek's domestic market revenue now?

Two to three per cent.

Why is profitability dropping? Is this due to the large exposure to the European market (in excess of 50 per cent) when all the action is in the US?

In fact, Europe is very profitable for us. We had gross margin pressures at the beginning of the year (July). We had also decided not to reduce our investment in sales and marketing.

Your revenue from verticals is as follows: financial services account for 40 per cent, the government for 23 per cent, education for 6 per cent, telecom for 4 per cent, manufacturing for 6 per cent, retail for 2 per cent, IT and other services for 20 per cent. Which of these segments is growing?

Financial services, in which we have strategically decided to invest in a big way. In the last two quarters it has moved from 38 per cent to 40 per cent. We have a great focus on insurance. Our major order wins have always been in the insurance industry for the last one year. Five of the top 10-15 American insurance companies are our customers. You also see some growth in the government "� we have been successful in winning orders from the British National Health services.

How did you start this company?

Three of us were at the Indian Institute of Management, Ahmedabad, and wanted to start a company. This was in 1977-78. We took courses in entrepreneurship and did a project based on software companies. We went and met the department of electronics (DOE), as it was then called. So we did a lot of work while we were studying. By the time the recruitment season came, we were clear that we would take IT-related jobs in Mumbai.

You got a job first

Before I did the MBA, I worked at Godrej. They asked me to return. I began with R&D, then sales and support, but I did a lot of IT-related jobs after I returned from IIM. The house I had was a plus point. We stayed together and then we left our jobs one after another.

Where did your colleagues work?

R. Sundar was at HCL, another was at Nocil.

Did you get an order first before the company was launched?

We got an order first. One of the first jobs was from Procter & Gamble (then Richardson Hindustan). Gurcharan Das, the then CEO, is on my board. They had some unique production planning problem and couldn't solve it. They gave us a small project and we did it very well.

Where was your first office?

At Ghatkopar, in the drawing room of Ketan (Mehta), my colleague. We used a jeweller's telephone: it then took 10 years to get a phone. The jeweller got tired of us and said 'your phone calls are more than ours, let us stop this.' We then used a public telephone. The first employees were hired in the drawing room.

Did you find it difficult to get employees for an unknown small company?

They were very courageous. We had a tough time paying their salaries for the first three or four years. But we moved quickly to a business centre at Nariman Point. Ghatkopar was not a good address on a visiting card. It was a 35 square feet office, with two chairs and tables.

Interestingly, Infosys' Narayana Murthy who is a good friend, said, 'I will show you my office.' He took me to the same building. I told him, 'We also started here.' Of course, he had a bigger office.

Four of us ran the company but we did not have enough tables and chairs to sit. But we were in the custom-made software business, where employees did not have to come to office. We met all our employees every month at a hall we hired. We started a monthly meeting to keep in touch with employees at customer sites and the practice still continues.

How much money did you bring to the business?

We began with just Rs 10,000-15,000.

Was it a struggle?

For the first five years we struggled, we even considered closing down. Our friends used to travel by air and work for multinationals. I remember once for a Delhi meeting, we discussed whether to travel by air or by train in second class "� that was a big decision. We got a lot of offers to acquire us.

Then, another company wanted us to build PCs for them and run that company. The PC market was just growing. But we said no. We were clear that we wanted to run this company ourselves, that we had to have faith in ourselves. Ten years after that, a business house offered to acquire a majority stake in Mastek, but we declined. It would have paid handsome money, because the company was public by then.

Would you sell your stake today?

We have no such intentions.

Is it easy for someone to break into the top 20 software companies list in India today? Why has the top 20 list not changed substantially over the years?

In service companies, growth happens out of your existing customers. It's difficult. If you have a product business it is easier "� you may have a revolutionary product and everybody starts buying it. But when you are in the services business, you get incremental business. That is true for us, Infosys, Wipro or Accenture. The only way somebody can suddenly enter the top 20 league is through mergers and aquisitions.

There has been speculation that a lot of consolidation will take place among companies that are below the top 10 rank.

Nothing has happened. At times, we try to acquire a company that's smaller than us, we know the promoter but he doesn't want to sell. He says he wants to continue, that he feels his company can still grow. An Indian entrepreneur is quite committed to the organisation he builds.

You want to acquire companies with customers overseas?

Yes. They should have a certain set of customers in a specific domain, should have some domain expertise or should have some skills that we don't have in technology. We are open to opportunities.

Will Mastek be swallowed up?

If we are available, we will be. We say we are not available (chuckles).

You are now increasing your presence in business process outsourcing (BPO).

We have two joint ventures "� with Capita, the largest BPO company in the UK and Carreker Corporation for banking payment technologies. These two are our primary engines for BPO.

Do you see this expanding?

Yes. Our customers are saying, 'look you are doing IT, why don't you do a full process for us?' That's the reason Capita and we joined together. But we don't want to just go for all types of BPO "� we want to have our niche. Wherever we go we do not go as another Indian BPO company, we go as a solid American Indian or British Indian company. So it's the power of two which is important.

What kind of work has Mastek done for the British government?

It is actually going to start now. We are computerising the whole health service, for 52 million people. The spine is a central data base of all these people.

And the London traffic project?

We have completed it. That, you know, is a success story.

Where do you see Mastek five years from now?

We need to get greater scale and be a large software services company. So we are aggressively investing in sales and marketing. We are focusing on some niche areas overseas. We need to grow faster than the industry. Last year we jumped from sixteenth to thirteenth rank. Among the top 20, we were number 2 or 3 in terms of percentage growth.

How do you build a brand?

Scale helps, a niche market helps, successes like the London de-congestion project help. Today we don't have to prove ourselves. So a brand is already built in the minds of people. How our people behave also builds a brand.

You don't spend a lot building your brand

We spend money on advertising, we produce white papers, we have produced books on culture, integration. So we encourage people to visit our website. Then through seminars and talks and leadership positions that we take in the industry. I am a past chairman of Nasscom and am still involved in larger issues.

By now, you must be a wealthy man. What has this meant to you personally?

You don't talk about wealth, you just build a company. If you start looking at your share price, you will go crazy and get upset. You don't do the calculations and feel you are on top of the world. So one is not looking really at wealth which is not in your hand, because it is there in the company.

I live on my salary. We are middle class people, with middle class values. My wife always asks, 'why are you spending so much?' If you come to my home, you will see that we still lead a simple life. I don't have any servant, we do our own work. I don't feel like buying some yatch or horses, I don't like anything of these, honestly. The only passion I have is books and reading spiritual books. The only luxury I have now is buying more expensive books. I can now buy a book for Rs 1,500 without batting an eyelid.