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|September 15, 1998||
Azim Hasham Premji is scholarly. A textbook CEO for a textbook company. Many believe the reclusive 53-year-old chairperson of Wipro Corporation has answers to tough questions that are facing Indian companies competing in the global economy.
But he had been not talking. At least to the media. When he granted this rare interview to Rediff On The Net, he turned out to be very combative in the defence of his ideas, betraying a flash that can come only from a well thought-out strategy.
He dropped out of Stanford when he was 22. On the sudden demise of his father, he had to return home to take over the family business of oils and soaps.
Since then, he has transformed the original 'Western India Vegetable Products' into the Rs 18.26 billion Wipro Corporation, a well respected, highly diversified, professionally managed company.
Its businesses range from baby toiletries, soaps and cooking oils to bulbs and tube lights; from PC manufacturing to software products and services and from medical systems to fluid power and even financing.
However, in the past few years, this diversified image has taken a beating as an overwhelming percentage of its revenues come from the information technology businesses.
Analysts began putting pressure on Wipro to hive off its infotech companies so that market capitalisation could be improved. There was an identity crisis, they said.
To set matters right, the company recently invested large amounts of time and money into creating a new identity for itself, complete with a new logo.
These are turbulent and decisive times for Wipro. Rapid growth and dramatic changes in its business portfolio are putting enormous pressures on all fronts.
Some of the crucial issues for the company today are:
The answers lie in the head of one man. Will Azim Hasham Premji's genius work magic again?
At his corporate office in Bangalore, he attempted answers to these riddles and more. Excerpts from an interview with Deputy Editor Zaki Ansari:
Why have you shifted your office from Bombay to Bangalore?
We shifted our corporate office here about three years back. Our business had become Bangalore centric. The infotech headquarters is here. The business offices are here. Our services business and hardware business and maintenance business and software business are here. Our medical business is here. Wipro GE Medical Systems is based in Bangalore. The fluid power business is here. Wipro Finance is based in Bangalore.
So, the only part of our business that is based in Bombay is our consumer lighting business. And we just thought that our corporate office should be where our people are and where our head offices are. Instead of just trying to spend 15 days a month in Bangalore and the rest in Bombay, I shifted here last year. As simple as that. Because I had to be at the corporate office.
There is a perception that you are getting increasingly hands-on and it is very unorthodox as generally people, when they mature in the industry, go more hands-off. Is this perception true?
What do you think is leading to this kind of perception?
You are the first person who has said this.
But people we have been meeting in Bombay say that since Mr Premji shifted to Bangalore...
If anything, my periodicity of review has remained the same or reduced. What is more hands-on now is that I am meeting more customers. Because customers visit Bangalore. They don't visit Bombay. Because Bangalore is our head office and our corporate office and our business office.
So, I certainly meet more customers. But that is not being more hands-on.
And I certainly meet more employees. Of our employee population of 7,500 people, 3,800 are based in Bangalore. So that is automatic. We are a people business. Our services business is people oriented. The technology business is people oriented. They are very people-oriented businesses.
I am not more involved in operations than what I was before. I was spending about 10-12 days a month in Bangalore. And they were long days. Very, very long days. Typically when you are travelling your day begins at 8 and goes on till at least 10 in the evening. You end up doing what generally you would pack into 14 and 15 days (as compared to 10-12 days) just because you want to come in quickly and go out quickly.
I don't think I am more hands-on. I don't think so.
Wipro is fast becoming mostly an infotech company. Where do you see this leading to over the next three years?
Well, you must appreciate one thing. Infotech must be clearly divided into products and services and divided into software.
Products and services business has been roughly growing now at about 15 per cent to 20 per cent. Roughly. Value-wise.
That is roughly the growth rate of our other businesses. 20 per cent. 25 per cent. 30 per cent. 25 per cent. Our fluid power business is growing roughly at 20 to 25 per cent. Consumer care and lighting business market is growing at 15 to 25 per cent depending on the rates of inflation. Our health care business market is growing at about 25 per cent. So, for the majority of our businesses, in terms of number, the markets are growing between 15 per cent and 25 per cent.
In the software business, which is the export business, the market is growing at 60 per cent plus at the moment. Last year it had grown at something like 58 per cent, 59 per cent. There you are. One was because of the depreciation of the rupee. Two is because of date 2000 demand. And three is because the Indian software services quality has been appreciated globally.
Lot of people are now coming to India or working with Indian companies. So it is automatic that our software services business has to go at least at the market rate. The entire business has got a sizeable weightage.
This year we will do in software services exports rupees 700 crores (Rs 7 billion) out of our total sales of maybe about 1,300 to 1,400 crores (13 billion to 14 billion). And that business is growing at 65 per cent plus. Obviously, our infotech business is growing faster than the other businesses. It is increasingly becoming, especially software services is becoming an increasingly larger part of the company.
And it happens. Because I don't see this market in software services slowing down from India to a growth rate of less than 50 per cent.
The software services business is growing two and a half times faster the rate of our other businesses and we are growing equal to or faster than the market.
Most of the Indian software industry is doing just coding work for others without building much branding for itself. How do you think the industry can break out of this trend?
One is that the better companies are increasingly focusing on turnkey projects. When I come to you. You are my customer. Suppose you are General Electric. There are two models that you can operate with me.
You can say, okay, I want 50 per cent. And I will do all the project management. I, mean, General Electric. That's what the predominant model in the country is.
That is what significant proportion of our business is. Which is basically you have high skill people. You have manufacturing laboratories and manufacturing plants in India. And manufacturing plants outside India. Software manufacturing plants. And you have people who work under the guidance of overseas project managers and they deliver the quality.
And you must ensure that you have high-grade people and this acquisition of turnover to be able to replace them and if they want more people you must be able to give them. And that is a model in which you have very little control. Because, basically, it is a subcontract.
A more sophisticated model that we are driving the organisation to is that: This is the project. We will take complete responsibility, including time, including quality, including schedules and give a strong price for it.
And if we do better than the quote in terms of time, quality, et cetra, we make more money. And we do worse than the quote we make less money. And if you are on the quote you are making good money.
There's one thing there that you do turnkey projects. That's going up the value chain. And a significant step up the value chain because managing projects is not easy.
We have computer departments that keep changing their specifications every two months. Finally, we have got to say stop. I am at a stage now that I cannot change. And if you want to change you have to pay for all the backlog.
The second is that you have domain specialisation. We have domain specialisation in health care. We have domain specialisation in say something like telecom. We have domain specialisation in ERP. Where we build up (software) expertise.
And the customer comes to you because that expertise is needed. And some of that expertise is modular. In the sense it is modular in that we have built up certain experience base, certain IT base in a certain area in which we are able to give the customer certain leverage that is disproportionate to the time we spent on it.
So in a domain, both in terms of time and material as well as in terms of projects we are able to get them excellence. It is because we are no longer selling people, we are selling a certain expertise. So even if a person wants to hire 10 people of yours on a daily basis, he is paying the price for the expertise and not necessarily the price for recruiting.
Where expertise is the case, generally the customer does not have the expertise that he can spare or is available or is competent (to have). Now in most of our business, we are shifting towards this. Expertise, you know.
We are no longer concentrating on date 2000. The date 2000 accounts are only 7 to 8 per cent of our profits. Date 2000 is itself an expertise but we decided to not follow it.
So you build up expertise in a certain areas and you sell that expertise. And because of that expertise we have a certain building blocks. And we are able to leverage those building blocks.
The third area is products. Like we are doing in a small way. But you have the kind of products that Microsoft has. They are very market intensive, brand intensive. We have no chance. We tried many, many years back and it cost us a lot of money.
But we have other products like Cybermanage. Like Softchips. They are high-technology products. All these products are generally sold to original equipment manufacturers. Very large companies. It is typically licensed. Typically these products have to be customised.
The moment you sell that product you get a large service revenue coming out of it because it cannot be installed on the computer of the customer or its application unless it is customised. So you get a large service revenue out of it. And we are putting in a fair investment in that area because we are seeing that the profit per person in that area is higher. But the risk is also proportionately, significantly higher.
Would you not put Softchips (a venture in creation of intellectual property in semiconductor design) in the second category?
No. Third category. The product category. It is very risky and it is not very easy to succeed in that (the product category). Not too much of the exports of India, what we exported last year, Rs 6,800 crores, Rs 7,000 crores (Rs 68 billion, Rs 70 billion), was from this category. Not even 5 per cent.
It is not an easy business to do. Primarily because of the marketing constraints. It is not easy to market. You may have a very good product but it is very difficult to take it to market.
You must be able to market it within the product lifecycle. Because most of these products have very short life it is very difficult to exploit the cost of development over that life unless you get good volumes.
Even in that restricted category you need volumes. And for that you require a marketing outfit. And you face a little disadvantage vis-à-vis being an Indian company in that market. It takes time to create that market. We are giving that area attention and focus. But it is only a part of our portfolio.
In the next three to five years you see a lot of your profits coming largely from the infotech industry. Don't you?
Significant part of our income will come from the infotech industry. Actually, 80 per cent of our profits will come from the infotech industry. It may go up from 85 to 90 per cent. It all depends on the future profitability of the software industry.
The Indian software industry's current advantage is based on low cost of labour. How long can this continue?
Well you see, I think you have to see this in perspective. A very important perspective is that the rupee will continue to depreciate for a very simple reason: I cannot see us, in a developing economy, managing inflation rates within 7 per cent.
What we have seen in the past five years is about the best period you have seen ever in the economic management of the country. But local inflation rates are now, in all developing countries, running about 2 per cent, 3 per cent. Automatically we have got a built-in depreciation of the rupee of 4 to 6 per cent. And then the depreciation of the rupee is on a dollar base.
Today a software professional in the country costs 3 lakhs a year (Rs 300,000). About senior management. Which is equivalent of about $ 8,000? $ 7,000-8,000? $ 7,000 to 9,000? $ 7,000 to $ 10,000?
A comparable person in the US today would cost around $ 60,000. His salary in the US inflates at 7 to 8 per cent, counting the rates of inflation of the US salaries of computer professionals. Rest of the salaries work up 2 per cent or 3 per cent.
Software professionals are at a premium. Globally. Everywhere. US, Europe, everywhere. It is simple mathematics. It is unlikely that the rates of inflation of Indian software professionals will go up by more than 25 per cent, 30 per cent.
So, inherently the competitive position is partly retained because of the depreciation of the rupee and because of the differential rates of inflation.
The second issue is that the companies that are going up the value chain are also going up the productivity chain. And going up the price chain means getting extra money coming in because of that.
Today you are completely underpricing yourself globally. So, companies in India with more credibility, stronger track record, can charge more for the same job as compared to what they are charging today.
It will happen. We are finding that we are able to get better rates because of a certain track record. We have got some extra money coming out of it. Today the software industry is running at low productivity. We are driving very aggressively in our company for higher productivity. Higher output in terms of line points per person. Function points per person. Some growth comes in that.
We have deducted that over the next 10 years the industry will continue to be a very profitable industry.
Now, whether the industry profitability is going to be higher than it is today? It is unlikely. It will be under pressure. But still it will be a reasonably profitable industry to continue to invest in.
But what is happening is that the industry is becoming highly capital intensive. So the industry is not something you can set up in a backyard. Because customer requirements and productivity tools requirement and the infrastructure requirements and the investment in hardware are bonafide requirements.
We will be investing this year say about Rs 200 crores (Rs 2 billion) across the corporation. More than 150 crores (1.5 billion) of that will be in software CAPEX, capital asset investments. Next year that figure will be 50 per cent. A year and a half later it will be another 50 per cent. We are talking of 150 to 300 crores (1.5 to 3 billion) investment per year over the next three years.
It is a lot of money. By any standards. It is not easy for Mr Ansari to set up a software company. Unless you have a lot of money.
Do you think we will really be able to differentiate only on the basis of lower cost?
[Click through for understanding how the global trend of outsourcing and scarcity of IT labour is a boon for India!]
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