US recession good for India Mohandas Pai

US recession good for India: Mohandas Pai

Following the last US recession in 2001-02, India’s IT industry grew from strength to strength riding on the offshore outsourcing wave

Friday, April 25, 2008

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This in turn was spurred by many large US companies laying off people and moving jobs and operations to low cost locations like India. A few industry captains share their experiences on the recessionary times then and what they expect from the current uncertain times.

Mohandas Pai, head, HR, Infosys Technologies

"During the last US recession in 2001-02, the effect on us was much more because we had a lot of clients who were in the Internet business. Most of those businesses just tanked. This time around he feels that it is a lot safer because we have a lot of enterprise clients. "Actually recession in the US is good for India and for offshore outsourcing," he says.

Harshad Apte, VP, strategy and planning, India Infoline

India Infoline, which started off as equity research firm in 1995 began diversifying its services and came to be online broking company largely dependent on advertisements for revenues.

"We were not a pure play dotcom company and also paid attention to other businesses, while the going was tough but we did not give up the online model. From the time when dotcom excited the investors with just an idea the company sailed through a time when funding was hard to come by even with a full-fledged business model plan. Advertising online had completely dried up and seemed like the survival of the toughest."

"The current crisis in US is a result of so many factors, and if companies believe that their business model is a value proposition to customers then, I would say, stick through the bad patch."

Hitesh Oberoi, COO, Info Edge (Info Edge started Naukri.com)

"The previous recession was very severe with the dotcom bubble bust and 9/11. But it turned out to be a boon for many Indian companies. The difference in pay scales in US vis-à-vis India was 5:1 or 4:1. This made people look to India for opportunities for lower costs."

This was lot of work also for Naukri.com, which was a small player at that time. "We had revenues of about Rs 3-4 crore at that time. Since layoffs were high, people began to look at the Internet as a cheaper option to hire. Our size was small and we were maybe slightly affected for a quarter during 9/11. Hence we did not have to adopt any plans to fight the recession as we actually benefited from it like many Indian companies."

"The recession this time is very different. This time the IT industry per se is not affected, today nobody is laying off personnel. It is the profitability of the companies that has been affected, the growth rate may be lower but they are not in the negative as companies were in 2000. Even the Indian IT market was smaller, and today there is a robust domestic IT market."

The implication for the Indian IT companies was very short at that point of time. This time it is difficult to say if it would be severe. The difference in pay is hardly 2:1(US: India) and that does not make India cheaper destination for outsourcing. What we know that at least those companies who deal with the BFSI sector are suffering. The rest of the industries have good scope of growing. Even those dependent on the BFSI are growing, with only their profitability shaken. Maybe the IT salaries would have hit the roof if the current recession was not happening. That has been stopped thanks to the US."

Siddharth Madhusudan, director - marketing & KPO Services, Synechron

Synechron, a specialist IT services company in financial sector caters to mortgage banking, capital markets and insurance domains.

"Synechron started as a garage-outfit right during the earlier downturn. We met the challenge and were profitable right from the first quarter. There are some secrets and techniques to do that. The previous recession in 2001-02 was due to a host of factors, like dotcom and 9/11 that made it hard to trace or correct the situation. This time we know that it is purely economic factors and even Fed's role has been prominent this time."

"As far the recession this time is concerned, the company saw the waves coming much before. We have diversified heavily into insurance and capital markets. Insurance specially has come up as a dark horse in these times. We added many new clients last year. Also, this is an ideal time for companies to cut their costs. We anyway serve them mission critical jobs so there would not be any major business impact with the crisis. The prognosis can be attributed to its pre-emptive planning, strong research and well-networked top management that helped it see the cues of the crisis. We follow industry trends closely and got the wind of it much before."

"Mortgage is a much small part of the business, and we shifted our focus early on. Also, being a small company without huge armies of resources on rolls or heavy benches, we can adapt well and even take on smaller projects if required." The company has started hedging and steering from the US to markets like the UK and Europe with a bigger focus where it is doing considerable activity and bagging new businesses.

Arun Nathani, CEO, Cybage

For Arun Nathani, there is absolutely nothing to panic about at least in the immediate term. The US is under heat and while recession as always remains a grey line the fears arising out of slowdown in economy or sub-prime miscalculations would naturally have a trickle-down effect.

"But IT, if impacted, would only be the second, third or last in the line. IT industry, even with product companies, is essentially a service industry that has the role of driving efficiency for its customers. And ironically, a slowdown is good for the industry as it can be more relevant to cut costs and drive efficiencies for customers."

A slowdown, is in fact good for IT, but a serious slowdown is not good, he explains. Responding to the muted outlook and results from frontliners like TCS, Infosys, HCL etc that confirm the fears of recession, he prefers to maintain that the sentiment is still upbeat, "Everyone was writing IT's obituary but the current environment shows that though cautious, the sentiment is rather bullish. We are not a large company in comparison, but with over 150 customers, we are getting good vibes. Our customers are in good shape, the conversions and growth is positive and in fact this calendar year looks more positive than last one."

Cybage expects to clock approximately 20 per cent growth in the year gone by in Rupee terms and has an outlook of churning 30 per cent growth next year too. The margins, as he shares, are better on new accounts and the company has been adding customers at double digit numbers every quarter He concludes thus that the severity of impact would be not in the immediate future and not in the particular calendar year. "Impact will be seen if the US goes into a deep recession in three to four months."

Delving on comparisons with the bust in 2001, he says that the scenario that time was more of a dotcom bubble burst owing to speculative reasons and lack of patience. "We lost some customers then but there were some that survived, we hung around with them."

For Cybage, the discipline of staying rational and not being carried away and working on costs and operational efficiencies throughout its journey has paid off while its peers might have had non-sustainable operations. "In fact, in the year of the bust, we grew faster and doubled."

The bigger picture, lesson or correction, hence, that this situation can lead to is the realisation that the US is the centre of economic gravity worldwide and how global economies are linked still to anything that happens there. "It's time for questions like - how can the US dictate global momentum. May be ten years from now, we would not need to worry about fluctuations that happen in the US, if countries on a global level, come at par with each other."

Pravin Tatavarti, MD, Allegis India

Tatavarti who is now heading the Indian operations of US-based HR staffing company has been witness to the effect of the US recession in India back in 2001 when he led the HR division of one of the biggest American software companies. "When the recession happened in 2000-02, my company (not willing to name the company) increased the number of hires in India. They decided to move not just product development but also back office functions to India. The size of the workforce doubled in India. A lot of huge cost cutting also happened and it was goodbye to team dinners, training and team building programs; travel was also cut down. The company laid off a lot of people in the US-both for employee productivity reasons as well as to cut costs."

Contrasting it to the current day, Tatavarti says that there has been a slowdown in hiring in India since the last one year. Even in the US, layoffs have not occurred in IT but in other verticals like financial sector, real estate and construction. He also says that there is a welcome impact in these uncertain times in India.

"The attrition levels in India are coming down because employees want to be very careful about their jobs and don't want to jump jobs unnecessarily."

Poornima Shenoy, president, ISA

The 2000 slowdown came immediately post the dotcom boom in the country. This was a period when the bubble of hyped up valuations went bust and there was a return to fundamentals. A whole generation that had only seen the upside since 1994 realized that there could be a low period and that pampering by employers and Venture Capitalists could cease.

The first effect was the cost cutting followed by a slowdown in recruitment. Some campus recruits from premier management schools saw a withdrawal of the offer letters by prospective employers –that is generally a last resort. A few companies that were planning IPOs put their plans temporarily on hold. Expansion plans were postponed.

But by 2001/02 services companies started to see some benefit, Rather than expand teams in higher cost locations with fixed costs, some US companies started to outsource design services to India. Real estate prices came down to affordable levels especially in the residential market and those with cash in hand benefited tremendously from such investments This experience has made industry take a far more cautionary approach this time. Investment into marketing activities may decline but R&D and Talent development will take place so that companies are ready to bounce back with worthy products and a pipeline of talent when the market recovers.

Satya Prabhakar, CEO, Sulekha.com

Amongst myriad Indian Internet companies present, Sulekha.com commands a unique place.

Commenced at the time of dotcom bust and the dependence on the American markets was palpable, Sulekha.com did have its share of anxious moments while setting up an infrastructure in this highly interactive medium.

According to Satya Prabhakar, CEO of Sulekha.com, the site has concentrated on creating content by the users long before it became a fashion, and it did not stop there. User-generated content ensured interactivity amongst those who communicated through the site and over the years have provided a loyal following.

However, commencing such a venture was not without its share of troubles as Satya says: "After the dotcom bust, the sentiment was very poor in terms of customer willingness to spend money for online advertising or spending online. Due to lack of such readiness and poor understanding of how online can be used as a marketing medium by mainstream marketers, making money became very difficult."

Challenges were everywhere and companies like Sulekha could not focus on one sure bet and make it work.

Thus, clarity of business model was critical. Content ruled the roost from the beginning and Sulekha ensured that content which had an audience and a longer shelf value was at the core. While others hunt for big brands to advertise on their sites, Sulekha.com looks at the SMEs and guarantees them responses.

Also, he believes that the USP of Sulekha.com lies in it not projecting as a pure social networking entity and has gone ahead and tied up with entities such as Deccan Chronicle, Penguin, Man's World etc and has unveiled 'Sulekha Select', a compilation of 42 works, signaling its foray into the print arena.

(As told to Priya Padmanabhan, Pratima Harigunani, Sushma Naik and Prasad Ramasubramanian)

©CyberMedia News

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