Infosys’ executive co-chairman, S Gopalakrishnan, believes slow growth will continue for at least three more years. While he is optimistic that the new strategy of the company will yield dividends in the medium to long term, it is focusing on winning new clients in the short term. In an interview with Bibhu Ranjan Mishra, he says the company won’t mind giving pricing discounts to existing clients in the short term. Edited extracts from an interview:
Do you expect this phase of slow growth by the IT sector to continue for some time?
Yes. When things started improving after 2007, everybody believed the worst was behind. But, in reality, this was never behind. The difference now is the debt has moved from private enterprises to the governments. But the debts are really huge and de-leveraging is going to take some time. I expect a period of slow growth which can last up to three years or even more. This is going to be a prolonged recovery.
What is going to be your focus in this phase of slow growth?
In the short term, we have to focus on specific deals and specific customers. And, whatever we are doing in the strategy side will take medium to long-term to fructify. We have gone through our 3.0 strategy and I am confident this is the right strategy in the medium to long term. We are investing into new markets. We are investing into building our client relationships. Recently, we have announced a position called ‘client partner’ to manage large accounts.
You said you would focus on specific deals and specific clients in the short term. Could you elaborate?
There are two ways we can look into in the short term. One, we can become aggressive in pricing and try to capture as many deals as possible. The second is to continue to pick and choose deals, based on our capabilities. It expands our business with existing clients. But when you acquire a new client, pricing plays a major role. We are sensitive to the environment and we are aware that cost is the primary driver today. But we don’t want to position ourselves as the lowest cost provider. We will be competitive in the market on total cost of ownership.
Will you consider the demands from existing clients who want pricing discounts because of the tough environment?
Yes, we are sensitive to their demands. If their budgets are affected, we will work with them. This is reflected in our revenue per employee, which has come down. It’s partly because of the business mix. But that is different from being the lowest cost provider. We will provide the best value for clients. But we don’t want to compete on per-person cost and rate per hour.
Infosys 3.0 also talks about making the company a global system integration and consulting Corporation. But consulting is highly dependent on discretionary budgets, which are under pressure now.
The revenue will be little lumpy in consulting but I am okay with that. The direction is clearly right. In fact, we started focusing on consulting almost six years ago, under the Infosys 2.0 strategy. Many of the services we launched under Infosys 2.0, such as BPO, IMS (infrastructure management services), consulting and validation, have each become $300 million-plus business now. Many of the things we are doing today will yield significant revenue over the next five-year period.
You are also in charge of sustainability at the company. What are you doing under this?
Sustainability is an overarching theme for us because we want to create a sustainable Infosys. This means we have to create a company for the long term. We must have a leadership pipeline to take the company forward. We must have the capability to recruit the best people from anywhere in the world. We must have a business model that is sustainable over a long period of time.
Of late, you have increased the hiring in locations abroad. Don’t you think it will impact your operating margin, so far the best in the industry?
It’s a balancing act we have to do. But our margins have also come down over a period of time. It’s because we invest back into the business. Despite that, we are still able to maintain the margin. But, going forward, the margin will come down for everybody. We still want to have one of the highest margins in the industry. We believe the best companies should have the best margins.
