Called the Bill Gates of India, Azim Premji, the influential Chairman of Wipro, ranks amongst Asia’s most powerful business leaders. This is the man who has left an indelible market, India’s IT sector. He created software colossus Wipro, a pioneer which helped to stir up the wave of outsourcing across the globe.
“We put in a huge amount of value in getting the best people which could really out-compete competition and we were successful,” he says.
Fame for his modest lifestyle as much as his wealth, a 21-year old Premji first took over the family cooking oil business in 1966 when his father passed away and turned it into one of India top tech giants.
“I had not been involved with my father in terms of the business. So frankly I knew very little about running any business except the fact that I had been trained in electrical engineering at Stanford University so that discipline of thinking was useful,” Premji says.
The Bangalore-based company started out making cooking oil and soaps. In 1982 Premji dived into IT by buying up a tech company in the US.
“Put together an extremely strong R&DT and we invested lot in after-sale support unlike our competitors at that time and invested a lot in building configured solutions for customers because imports were not permitted into India and we became an instant success when we launched and we kept ploughing back that money, growing that business and by the end 80s we decided that we have huge talent in R&D services, why not start addressing global customers. So we set up a global lab on hire. Initial customers were Intel, Motorola and Nortel,” Premji explains.
Here is a verbatim transcript of Azim Premji’s exclusive interview on CNBC-TV18. Also watch the accompanying video.
Q: So that was the time when you realised you could really capitalise on outsourcing?
A: That’s right, so the whole concept of outsourcing, we are one of the pioneers which established the concept of outsourcing.
Q: Looking back did you ever think of the risk involved?
A: I think when you get into something, if you just get terribly paranoid with the risk, you just do not move forward.
Wipro is now India’s third largest tech firm with annual revenues of USD 6 billion. The company which is 78% owned by Premji is eyeing expansion and new lines of businesses but its core IT business took a bad hit in the passed couple of years.
Q: The last few years have been pretty tough with the IT sector, getting slammed by the financial meltdown, you were hard hit as most of your clients in US and Europe decided to cut back on outsourcing and demand for cheaper rates. What hard decisions did you have to take to weather the downturn?
A: We took fundamental stock of the organization. One good thing was we saw it coming earlier than most of our competitors. So when we started looking at the organization and some of the people who did not meet global standards, were accumulated in the organization, we started counseling them and when they did not shape up to requirements we stared out placing them probably 6 or 9 months before the reset of the world really hit us.
We also started investing a lot in non-linearity in the sense that how do you get more revenue per person and how you get more profit per person, whereby you are able to give more value to the customer at the same price or give more value to the customer at a reduced price.
We started investing in taking more risk upon ourselves in terms of end to end projects where we were turnkey responsible and outcome based projects where we would price with customers that part of it would be front end and part of it would be determined by outcome.
Q: So basically you invested during the downturn?
A: We invested during the downturn plus we invested a lot in training and retraining and retraining people during the down turn. So anything which was going to be for year 2 and year 3, we stepped up investments, we didn’t under-step investment.
Q: How much have you had to cut pricing just to retain your key multinational clients?
A: Very little, surprisingly very little. But it depends upon how you define pricing. I think at the end of the day we gave more value. So we gave more operand work at the same pricing, we gave more services at the same pricing, we gave more productivity at the same pricing. So in conventional terms, you would say that the customer got much more value for the same price.
Q: You also face headwinds coming from the stronger rupee and increased wages as well, both of them putting pressure on your margins. Have you had to rethink your offshore lead outsourcing model?
A: During this period of about 18-20 months when this reset took place of the world, the recession took place of the world whatever you call it, the salaries were quite stable. Most companies didn’t give salary increases including in India. So the salary was not a pressure point.
I think what was the major pressure point was the firmness of the rupee and that posed a double whammy challenge. Fortunately it bounced back in terms of weakness to more realistic levels.
But there is a huge capacity for an innovation in an organisation, when you are against the wall; you are able to do a lot of things differently.
Q: Like what?
A: We started focusing in emerging geographies like the Middle East much more, put extra thrust into India, we started focusing on new geographies where we had low penetration like Germany and France, they are very large economies with a country approach. So a multitude of things which we would have spread out over two years we were able to scrunch in six-nine months because of a huge sense of urgency.
Q: What about the concept of offshore led outsourcing? Did you have to rethink that model, did you have to put more emphasis on near-shore led outsourcing instead?
A: What we put more emphasis on and again this was more strategic, we started localising our presence in countries much more and localising not only at the soldier level or at the rooky level or the junior level but localising at the senior level, middle level and at the top management level. And, the recession gave us an opportunity to hire the best talent in the world because we said that recession would be followed by outcome whereby countries would get more protective on visas.
The problem with developed world is they love liberalisation provided it doesn’t affect them. The moment liberalisation generates competition for the developed world, all kinds of artificial barriers keeps coming up and in services, the easiest artificial barrier is don’t give visas or delay visas or hassle visas or increase the cost of visas. So we have localised now—40% of our people force working overseas is local and within the next one year 50% of our force working overseas will be local.
Q: To what extent does localisation help you counter some of the outsourcing backlash you are facing in the US, your biggest market, a country does even tried to cut down on job losses?
A: I think it helps, its helps substantially particularly at the state level because people see visible jobs getting created. I think we can do a more aggressive job of marketing the jobs which we have created as a country and as a company. But it’s understandable, when the world is facing large rates or high rates of unemployment, any company which generates employment in a local geography will get the sympathy of the government and that’s one of our prime reasons also.
Q: Like you mentioned you had to face restrictions coming from the US with regards to temporary visas of IT specialists and that has somehow impacted the zone of people you bring into the US. How much is this hurting your business there?
A: In terms of the visas—at this point of time not significantly, it’s just causing delays. Even in Europe its causing delay so you have to anticipate more, you have to be one step ahead of the curve. But the trend is it will increase particularly if employment rates do not go up which do not seem likely both in America and Europe.
Q: Do you expect more countries to follow suit?
A: We think so.
Q: How will you account to something like that?
A: Just by localising more, having more people who work in the overseas countries as locals.
Q: Just when things are starting to recover, the debt problems in Europe have surfaced. Europe makes up about 26% of your total revenues, you are worried about the major slowdown coming in from there?
A: The slowdown is coming from Greece, Portugal, Spain and Italy, they are countries more effected in this entire catharses and we have virtually a zero presence there, we had never focused on those countries primarily because of the economic conditions of those countries. The issues is can the problem of Greece which his 2.6% of the entire euro region in terms of GDP pollute the rest of the region. We have done a lot of work on this in terms of understanding what is going on and our assessment is no. It will get contained; the reconstruction package will have effect, I think Greece will go through major catharses, in terms of labour-union problems, management-labour problems, government-labour problems. But frankly they do not have choice unless they fix the problem they illiquid as a country.
Q: Your biggest markets are now the US and Europe, you are comfortable about your risk exposure there or by the growth potential coming from Asia?
A: Asia is a major focus market for us, just because GDP growth rates in Asia, Singapore will have growth rate of 8-9% this year. GDP growth rates in India, in Asia Pacific, in Middle East are probably 2-2.5 times those of the developed world. But even more important than that is the fact that the extent of penetration of IT is much lower. So the potential growth rate for the IT services business in these countries is even higher. So it’s a major focus market for us and we are investing and I am investing personal time on it.
Q: When do you expect Asia Pacific, the region to be a biggest market one day? Would that ever happen?
A: Including India and China yes, it could happen and would happen probably in about six-seven years time.
Q: IT services has become so fiercely competitive, not only do you have to compete with local rivals like Tata and Infosys, Western firms like IBM, EDS and Accenture also jostling for contracts. How do you fight back?
A: You have to be better, simple; you have to differentiate.
Q: How do you differentiate?
A: You have to be closer or the customer, you have to give higher customer satisfaction, you have to have better quality employees and the leading Indian companies have done their differentiation and have out-competed their global rivals. In fact the global rivals like the IBM,Accenture, Capgemini are trying to duplicate the India model.
It’s good, it’s more intense, it’s more competition and the customer is benefiting. And our experience is whenever the customer gains from competition, markets grow faster, the size of the cake is increasing.
Q: In the last few years the company has been busy acquiring companies, it recently acquired Citi’s India-based subsidiary, Infocrossing which is a New Jersey technology company as well. Is acquisition something you looking at to help give you scale to compete better?
A: Strategically; strategically from the point of view of special technologies to be able to acquire that, strategically from the point of view that if we are weak in a particular geography as a footprint and if it is giving us a jumpstart in that geography. But we are not looking at very large acquisitions; typically the acquisition which would be below USD 300-400 million a year and we have done this in the past. I think among the Indian companies we have been the most aggressive and we will continue to be doing them going forward.
Q: What do you look for in an acquisition, what criteria does it need to have?
A: One most important thing is the match of cultures because at the end of the day you are acquiring people and unless you are able to integrate those people into your system, your values, your way of doing business, you are asking for failures. So the culture is extremely critical factor of the acquisition. Second is customer relationship.
Q: But how do you find out something so inside like culture obviously you need to get into the company before and then you realise its little bit too late. How do you know from the start it would be right fit when it comes to culture?
A: Talking to the employees who have left the company, major source of information. When you do diligence try to meet as many people within the company as you can, it’s not very easy many times but you can meet the top management and the top management is able to reflect what the company stands for. But at the end of the day you make a judgement and you run the risk of making the judgement which could be wrong.
Q: Have you acquired any bad companies in the past few years?
A: We have not acquired bad companies but we have made mistakes. Mistakes that we thought that the technology we were really trying to buy was having a certain momentum in the market place but in fact did not have that momentum in the market place, it was too specialised and we couldn’t mainstream it.
Acquisitions which we made for a customer for increasing our footprint with the customers and two years later the customer came back and said we do not want a presence in Europe, we want to shift that presence and your work from Europe to India. So an acquisition which we did suddenly we found surplus employees there.
Fortunately we were growing so we were able to redeploy these people into other growth paths of the organisation.
Q: IT services is now your cash cow contributing about three quarters of your overall revenue, beyond IT you are in consumer products, medical systems, engineering divisions. How do all this fit into your business model? Is your ultimate goal trying to diversify away from IT services?
A: No, that’s not true. I think IT is a predominant part of our business and an even more predominant part of our profits after tax. Our consumer care business has been our traditional business, it was the cash cow which funded the entire IT business and its about USD 700 million business and its growing at 20% high a year.
The hydraulic, the engineering business which we have, is a much specialised business and we are number one in the world in it. So we are consolidating the market and we think we will have very rapid growth going forward.
The new business which we launched is our eco energy business but that’s filling up the white space of all our businesses because what we are giving is managed services solutions and systems integration solutions to our existing customers to make them more energy efficient. We are basically a system consultant and a systems integrator.
So all the uniqueness of our various businesses whether it be processed technology, LED lighting, software, analytics capabilities or electronic manufacturing capabilities, we have combined in this business and offering turn-key solutions to the customers.
Q: When it comes to your renewable energy business, you are investing in that. How lucrative isrenewable energy and where is the spending coming from?
A: If you have a credibility and a track record and you approach a customer and tell that customer that I can study the energy consumption patterns and I think at the end of the study I can recommend areas of savings which can be anywhere from 15-30%, how many customers are going to say no. At most they will say, okay I am willing to pay you a fee based on outcome—I will pay you 10% upfront and the 90% on the actual savings you generate based on my existing situation. We are willing to take contracts like that.
Q: How much do you expect these non-IT businesses to contribute your overall revenue? Do you have a target in mind?
A: The reality is, the IT services business itself is a very high growthbusiness and it’s growing at over 20% a year. The other businesses are smaller; they are growing at faster rates per year but because of a smaller base the catch up become very difficult. Maybe it will displace by 5-6 percentage points in terms of its dominance, that’s not significant.
Q: What would Wipro look like ten years from now, how different will be the company be?
A: I think we will be better. I think we will be having stronger market sharesin all the businesses which we are in, I think we will be having stronger partnerships with our customers; our global footprint will be stronger with a stronger brand preference in geographies outside of India which we have been present in for many years and we will be having more dedicated and better people.