Barely a month into the New Year, the slowdown in the US economy, along with its impact on the Indian IT sector, has been doing the rounds in the industry. And while a majority of the tech companies look troubled, this premier technology powerhouse called Infosys stands tall.
Despite the slight reduction in IT spending in the US market, the Indian software industry will not face the clog...rather, it will prove beneficial as India still has the resource power for offshore outsourcing, says S Gopalakrishnan, its co-founder and deputy managing director.
In an exclusive interview with ZDNet India, Gopalakrishnan outlines the Infosys roadmap, and identifies the real issues behind the US slowdown. Excerpts:
Is this slowdown in the US economy a myth or a reality?
The answer is yes and no. It is true that in the highest level there will be a slowdown in the rate of growth in the IT spending in the US. Against the traditional rate of 15 percent growth in IT spending, this year it has been predicted that the growth will be five to eight percent, according to our internal survey with the customers. There hasn't been a negative growth, though the growth rate has reduced.
Following this, in the next level, according to our analysis there will be some pressure on the hardware purchases, new software projects and also on the maintenance of the present ones.
According to our customers' survey, purchase of new software may be delayed. from the present level of three months, it will be prolonged now. The new projects may also be delayed, but there won't be much on the maintenance aspect, as for technology firms it becomes a must.
Will there be an impact on the Indian software industry as a result, considering the fact that US is the
single largest client?
I don't think there will be a big impact on the Indian industry. India is still known as the superpower for offshore projects and it has the resources for such projects. Furthermore, due to the slowdown, the rupee will become dearer, and this will again prove beneficial to the industry here as most of our earnings are in terms of dollars. If the rupee becomes dearer, it will have a positive effect on the revenues as for the Indian companies the cost incurred are only on the salary and the capital infrastructure which is not much if taken on the whole perspective. For Infosys, this comes to around 25 percent of the total spending while 98 percent of our earnings are in dollars. So we don't see a negative impact at all.
What are the precautions that need to be taken?
The first and foremost precaution is to disable to total dependency on the US market. We need to look out for markets in the Europe and Asian markets as well.
What does the slowdown in the growth of IT spending mean to Infosys?
We are very positive about our prospects of growth. We know about the slowdown in the rate of spending and we have planned accordingly. There won't be any impact on Infosys, as 85 percent of our revenues come from repeat orders. We have an excellent relationship with our customers. Had that not been the case, it would have called for real trouble. Again we are compensating the reduction in rate by increasing our customer base and also exploring new markets.
What's happening on the acquisitions front? It has been a long wait.
We have adopted a two-prong strategy in investments and acquisitions. Our investment strategies are in the areas of new markets and new technologies like optical and mobile technology. We believe in investing in those companies which will help us leverage the technology of the company or its market base for our customer base.
Our acquisition strategies will involve strategic investments in new services and new geographies. We are looking for entering new geographies like Japan, France, Germany - where language is a barrier for expanding business - to explore these markets. Meanwhile, for the US markets we are on the lookout for consulting firms for acquisitions. However, we are surely but steadily moving towards it. We don't want to jump into any acquisitions which we may regret later.
There was a drop in the revenues from e-commerce this quarter.
The drop from 32 percent to 28 percent was due to the slowdown in the e-commerce activities of start-ups in the Silicon Valley from nine to five percent. While we are sure that e-commerce and Internet will be the technology of the future, it all depends on what pace it takes and how the companies adopt different levels of speed.
Which domain do you think will drive Infy's revenues in the future?
E-commerce will positively be one. We are also increasing our activities in the fields of mobile Internet and VoIP and also in the broadband domain. We will also be in the embedded software domain. Since we have the ability to integrate all our activities starting from mainframe to the latest broadband technologies, we are in for some exciting times.
You have been growing almost by 85 percent every year. Will that be sustainable?
We always plan our projections compatible to the national average. While the Indian software industry is growing at around 55 percent, which is a pretty safe way to plan, we always look for opportunities to push some excess capacity in the system. When we see that, we grab the opportunity and grow faster. I am sure we will grow with the same pace every year.
Are there plans to increase centers in India?
Currently there are no plans. We are increasing our centers in India at Mysore, Mohali and Hyderabad this year. Our human resources will also be increasing fro the present level of 9,000 to 12,000 by the end of 2001. Till then, we will be quiet this year.