Ever heard of TGIM? It’s a musical show titled “Thank God it’s Monday”, iGATE Corporation’s initiative to waken employees’ enthusiasm for work with a bang on the first day of the week. To do this, the company’s own Rubber Band, comprising skilled employees, performs at lunch hour Mondays, entertaining employee requests at the packed open air theatre in iGATE’s Bangalore facility for the last three years. And that’s only one HR initiative from the iGATE stable, the other being its famed Scrabble Tourney.
It started off as the only such corporate tournament in the country six years ago, with the top prize increasing from Rs 10,000 at inception to Rs 4 lakh now! Phaneesh Murthy, CEO, iGATE, and an avid Scrabbler himself, spoke to eWorld to give an update on the economic scene and Indian IT’s prospects in it.
You were one of the first to talk to eWorld about the US economy going through a W curve. Is it playing out now?
In the US, the economy is beginning to recover, the demand is coming back. I had mentioned to you last year that it will be a check (tick) mark recovery for the Indian IT industry (i.e., a drastic fall followed by a slow recovery). IT budgets have gone up 2-3 per cent (just to put it in perspective, this is a growth of $12-18 billion on a base of $600 billion). The employers there are still reluctant to hire. But this increased budget has to go somewhere and that’s what the Indian IT companies are seeing the flush of.
Only after the W curve impact (in the US economy) gets sorted out is there likely to be hiring decisions. In the meanwhile, the flush may go back and it may drop a little. Right now, it is zero employment addition and all outsourcing. That is normally never the case. It is always part employment addition and part outsourcing.
(As distinct from the US economy), for the Indian IT industry, it will not be a W curve but will continue to be a check mark recovery. Only the slope may change a bit. W curve indicates one more decline. I don’t think a decline is on the horizon.
You had said that Indian companies have a good share in the IT CIO’s dollars but still have a long way to go for the operations (or the COO’s) dollars. How has that changed in the last half-year?
There is clearly a lot more BPO work coming to India. You will see the evidence of this, in terms of numbers, in 2010. The initiatives are happening now but the ramp-up has still not happened. You will see this in the forecast of 2010. There will be a significant uptick in operations.
After the 2001 slump, we saw a boom from 2003. Are we likely to see a similar thing now — a quantum jump for the Indian IT industry?
The answer is yes, but it will be operations (BPO)-led this time. Less than 3 per cent of operations dollar is spent offshore in India. I expect that to go up to 15-20 per cent in the next three-four years. That will create the next big wave of growth.
In IT, the next big wave of growth will still be only IMS (infrastructure management services). Also, it is likely to be only a gradual offshoring increase — from 19 per cent to 22 per cent and then to 24-25 per cent over the next three-four years.
For iGATE, what verticals are seeing action?
Mortgages are in big demand. We are also seeing a lot of interest in the Insurance space. Part of our work is picking up because we have good solutions. Our outcome-based model using iTOPS (integrated technology and operations) is gaining more and more acceptance. In this model, we tell the clients that we want to make money with them from the market, and not money from them.
The fact is that many of these companies require expertise in addition to ‘just work to be done’. Doing work on dollars per hour is good if you don’t want expertise. However, if the complexity increases and you are in need of more and more expertise, the iTOPS model will work.
Is the mortgage market coming back?
Yes, it is coming back. There is a lot of refinancing being done and loans are being modified. And it is a reflection of low interest rates. So, if you have the cash, it is a very good time to buy homes in the US, as the inventory of homes is quite huge.
What are customers in financial services doing?
There are two things happening. In the financial services space, particularly in banks, they have not got anything new in the last 18 months. There was a lot of the old, pent-up demand. Because the budget flow is there, some of that (demand) is coming through.
The second thing is that they are doing a lot of projects — such as digitisation, work flow enablement — for efficiency improvement to reduce costs.
With this recovery, would smaller mid-sized companies find it tougher to grow?
We grew by over four and a half per cent in both June and September quarters. We actually caught the recovery a little earlier than most of the other companies. My view is that smaller companies should actually recover faster as a percentage because of the fact that the bases are smaller.
Is this a good time for increased focus on the consulting business?
In a lot of our projects, we are telling our clients what we are doing. When our revenues depend on outcome-based fees, we can’t afford to let the client tell us what should be done. In an outcome-based model, we have to tighten the scope and tighten what I will do and the way I do it. To that extent, the consulting part is already going on at iGATE. We are also expanding our consulting pool and have hired a good consulting leader, who has come in from the consulting industry.
Does the lack of Government support in fighting visa issues still continue to worry you?
Culture-wise, Indians are fairly well integrated into the US system and reasonably well respected there. Hence, it is a little hard to understand as to why they (the US) have a policy that is anti-Indian. Generally speaking, I don’t think our Government is doing enough in this issue. When you look at the involvement of the Chinese lobby, it just looks very strong and they are able to get things done. I don’t think we are able to show the US the bigger picture of what it can do for the US and vice versa.
You were looking at acquisitions to scale to 20,000-30,000 people, from the current level of about 6,900 people. What has been the progress on that front?
In 2009, the valuations were down and hence owners of target companies felt that it was not a reflection of the true value of the company. Therefore, the expectation from where they were to what they wanted was very different. Now that most multiples have come back to normal levels, dialogue has been happening a lot more now. We continue to be interested in the BPO space, especially in the mortgage and healthcare verticals.
What is the update on the domestic market?
We have won a number of interesting deals and have found a lot of traction in the private sector, especially the multinational companies operating in India, in the manufacturing and telecom verticals. That was one of our strategies. To get in from here, make a good name and expand the relationship globally.
There had been resistance to the new, proposed tax on banks funded by the US. What is your view?
Most of the banks have returned the money with interest as per the terms drawn on by them. I don’t like this vilification of CEOs, who are seen by Obama as greedy and money-grabbing people. As CEOs, we are also trying to generate employment and contribute a lot to the country’s productivity. A lot of the stuff that is being done there (on the political front) is very populist. My view is that just because it is populist, it doesn’t make it right.
What is iGATE’s plan for salary increases and promotion?
We originally felt that we would not increase salaries in 2009 but when the market started heating up we did a 7 per cent salary increase in October. What under normal circumstances would have been done in April was postponed by six months.
In April 2010, they will be due for another salary increase and based on the market data in March, we will take a call on whether to do it or not.
Hiring plans for this year?
We are back in campuses this year. Our plan is to hire about 1,500 people this year, in addition to the 600 people we hired in the OND (October-December) quarter. Part of this will happen from the campuses. As a general philosophy, a larger percentage of our hiring in 2010 will be Just in Time (JIT) even if it is entry-level because we now find that there are enough students available, given that nobody recruited the last year’s batch. Also in the industry, there is a general phasing out of the join dates — people are joining through the year all the way from June through March.
It is my estimate that the industry will hire about 80,000 to one lakh fresh graduates this year which is significantly down from the 1.5 lakh hired in 2006-07.
What is your outlook for the IT industry for the year?
It is always positive to enter the year with momentum. I think this calendar year 2010 will see a 12-14 per cent growth for the industry.
Source:http://www.thehindubusinessline.com/ew/2010/01/25/stories/2010012550080300.htm
