Infosys is going through some tough times and questions are being asked whether the company can continue to be the poster boy of Indian IT. In his first ever interview after taking over the leadership role of India business, V. Balakrishnan, board member and former CFO of Infosys spoke to Business Line on issues ranging from the company’s future strategy to the challenges that the IT industry faces.
How does the new role challenge you?
Well, I have less work now (laughs). It’s a different kind of role and I am warming up to it. All the three businesses have their own set of challenges. India is a good market and it will evolve. Most of it is Government-related and it has long deal cycles. Within the system, there is still resistance to change in terms of adapting to new technologies and business processes. With regards to the private sector, bulk of spending is still focused on IT hardware. With most of them globalising, private sectors will spend. In the short-term, we will focus on government sector. For us, BPO is growing at 20 per cent. Most of the companies are outsourcing to gain cost advantage. In Asia, we have done well in banks like Sri Lanka, Vietnam, Indonesia and Malaysia. Everywhere they are looking at replacing their core banking systems. Therefore, the next year could be interesting.
There is a lot of talk about Infosys missing targets for this fiscal. The company has also shifted its listing from Nasdaq to NYSE. What does one read into all this?
The global economic situation is volatile. With QE4 (Quantitative Easing), the Fed will have a $4-trillion debt. Confidence is lacking there. Europe is in a mess. IT companies across the board have seen sequential decline. Nobody is seeing sequential increase. Today, there are two kinds of spending. One is efficiency in areas like ADM (application development maintenance). More companies are focussing on ADM, from which the sector gets about 30 per cent of revenues and that is a sweet spot for all of us. So we have to play the efficiency game. Secondly, innovation spending is happening. Clients are looking beyond cost and looking at enhancing revenues.Companies which have both will survive. The challenge is in the short- term. If you take a medium term view, we are well positioned. So, in the short-term, everybody is facing challenges.
So, the guidance may not happen?
We gave a forecast from what we saw at that time and it could change. Today, challenges are high. Economic situation has not changed and clients are hesitant in spending. We still have four more months to go. If the fiscal cliff talks get resolved, companies may change their view. May be in the new year they will spend money.
Some companies call Infosys the bellwether, some don’t look at it as a bellwether anymore...
We have history of performance and have built a lot of goodwill over the years. Most of it comes from the fact that they want us to perform well. We have to take it in that spirit.
So, internally what are you doing to address the challenges that you face? Any reorganisation or restructuring which you are looking at?
The character of an organisation will come out in tough times. There will be pressure to change course. But the moment you succumb, you will fall. We will stick to our Infosys 3.0 strategy. We are going in the right direction.
Some competitors and even analysts suggest that Infosys need to change its business model to outcome-based pricing. One of them has even shifted to an outcome-based model.
Everybody does outcome-based business (outcome-based business is a model where a company that outsources a business or technology function, pays an outsourcing company based on revenues generated). Today, clients want superior solution at a competitive cost. You can make transaction-based, outcome-based pricing and so on, but it is not the only business model in town. Take the case of Accenture. They have a portfolio which also includes outcome based model. I don’t think that is the ultimate business model.
So, you will stick to the existing strategy?
Strategy can’t be changed frequently. Shibulal (the current CEO and the managing director) took over last year and outlined this strategy and we will continue to stick with that.
You have your views on currency volatility. Do you see any changes now?
India will run a sustainable trade deficit. About 35 per cent of imports is oil. Another 10-15 per cent is gold imports. The balance you can control. Exports are declining in India and China. If you put both of that together, you have a sustained trade deficit. What can change is the increased FII inflows. For that you require increased confidence in the economy. For that growth is needed. For that lending rates need to come down. For lending rates to come down, inflation needs to come down. Inflation will come down when government spending will come down. That is not going down since we have elections next year.
Why did you take a decision to shift to NYSE now instead of doing it earlier.
In 1999, when we were planning to list, initial discussions were around where to list. At that time, Nasdaq was where tech companies listed like Apple, Microsoft. We were $100 million at that time and we felt uncomfortable in NYSE, which was for the big boys. Today, we are a $7-billion company with a $25-billion market capitalisation. We have enhanced our brand in the US and we need to do the same in Europe. Most of our peer groups are in NYSE and that is where we want to be.
In India, what are the deals you are chasing?
In India, government is trying to pass a Bill called Electronics Delivery of Services Act, which gives a citizen a right to demand government services electronically, akin to a Right to Education Act. If that comes, most of the government services need to move to the electronic mode. Secondly, with corruption being an issue, there is a lot of demand on transparency. Most of the departments in the government are focusing on how to e-enable it — whether RBI, tax or defence. Thirdly, financial inclusion is a big thing and it is a big thing all across the globe. You need to make sure finance available and accessible to everybody. However, problems with regards to last mile connectivity still remain. A lot of e-governance projects are coming.
What is the criterion for bidding for projects in India?
It should be big, transformational, include our Intellectual Property (IP) and should have transformational impact in the country like the DoP project, MCA 21 projects and so on.
Does it make sense to have more software centres in the US?
Offshore as a concept is how to do business at low costs. So, every company has some kind of onsite-offsite employee ratio. Every company has its own ratio. The issue is more about relevancy to clients and do transformational kind of work.
Are clients demanding setting up software centres because of tough visa norms now?
Some may, some may not. They are all worried about total cost of ownership. Around 40 per cent of our revenues come from fixed price and clients do not care where the work is delivered from.