Interview - N. R. Narayana Murthy

They say that the IT

industry grew at this phenomenal rate because there was no interference of

the government. But, for the same reason, we have seen very limited growth

in government spending in IT, which has effected the growth in domestic IT

market. What is your opinion on this issue?



I think the government has a clear role in developing an industry
particularly in an environment like that of India, which is an emerging

market. The role of the government is to create a policy framework that

reduces friction for access to market for operations of a company, access

capital market, reduces friction to equip oneself with the best technology

of the world. I think the GOI has done a very good job by and large in

doing this. So, I do not subscribe to the argument that since the

government is not involved, the IT industry has not grown domestically.

On the issue of the government not using much of IT, I think there is a

clear move today to increase the usage. Various state governments, notably

lead by Andhra Pradesh, are looking at creating IT-based administrative

and discipline making infrastructure. Also among the PSUs and the banking

sector, the importance of IT is being felt.

But, when it comes to government department, computerisation has not

been happening to a satisfactory level.



I agree with you there. The level of computerisation, IT usage in the
government departments is not up to the mark. But, look for example the

Income Tax department which has started the project to leverage the power

of IT to bring convenience to the tax payers. It will happen gradually.

The software industry has grown in the country in a manner no other

industry has ever witnessed. How much of this growth has helped the Indian

middle and lower classes in their lives, besides giving them employment?

What steps can the government take to ensure that IT applications become a

part of the Indian masses, thereby helping them lead a better quality of

life?



Slowly, we are finding that the utilities have started getting
computerised. Some of them are providing information such as complaints

through Internet. You can pay bills through banks. Looking at these

things, the government is trying to bring the anytime, anywhere paradigm

to the convenience of the common man. But, we are still in the beginning

stage and have a long way to go. I am sure we will reach there.

We have also been able to create more jobs with disposable income,

which has helped the secondary and tertiary industries. Today we see a lot

more cars and two wheelers being bought by them, which will help these

industries.

Why is there no coordinated effort between the industry and the

government in setting up a world class research and development (R&D)

centre for software technologies that will be comparable to the best in

the world. We have the expertise in the industry and the resource pool

too. Do you think finance is a big issue here?



I do not know if government has a role in the coordination between the
industry and the academia in the area of R&D. I think industry and the

academia have to come together. They have to start enhancing their

appreciation. The academia has to take a more practical approach in

solving the problems of the industry. The industry has to take a more

long-term view of the benefits of the research the academia can take up.

It is really one of bringing a certain amount of balance between the

expectations of the industry and the academia. I am not very sure the

government has a role in that.

The academia has never been known to be aggressive in meeting the needs

of the industry.



That is not what a government mandate can bring. It is possible with
the following reasons: The industry must see the benefits in leveraging

the strengths of the academia. The academia must get into an orientation

that part of the time we will solve problems that will bring short-term

benefits to the industry. They have to get out their ivory towers and

start relating to the society around them.

How do you see finance playing a role here?



The industry has to learn to earmark a larger percentage of their
profits than what they have been doing so far towards R&D. The norm is

10-20 per cent in the western countries. In India this figure is low. The

ball is clearly in the court of the corporate world, which has to define

problems to be solved that will have implications for long-term growth.

What is it that Indian software companies lack due to which we have not

produced any internationally recognised software product brand?



The traditional strength of the Indian software industry has been in
the area of software development, maintenance and re-engineering. In an

off-the-shelf product company, the cost of development, re-engineering and

maintenance is anywhere between 20-30 per cent. The remaining goes into

brand creation, marketing, sales, channels, in order to make sure that the

shelves carry your product. And then there is R&D. At this stage, I do

not see large companies moving towards products in a significant manner. I

think, as we start learning the science of brand equity creation and

marketing, we will see Indian companies transiting towards products. It is

going to happen in the next 3-5 years.

If the software industry was dominated by Y2K projects till yesterday,

what is it that has replaced the Y2K market?



Right now, the concentration is on e-commerce, enabling of traditional
applications for e-commerce, the leveraging of Internet and intranet

competencies for bringing information systems of the professionals,

package implementation and perhaps customer relationship management. Of

course, the traditional development, maintenance and re-engineering will

continue to be the major revenue earners for the Indian software industry.

Till when?



At this point of time, the estimates that have been put up is that the
total offshorable outsourcing opportunities is about $20-25 billion. As

you know that India has got only 10 per cent of that market till March 31.

So, we have a large opportunity which we can leverage. If we continue to

innovate, if we continue to make our employees happy and invest in

technology, infrastructure and brand creation, my personal view is that we

can grow 30-40 per cent for several years.

What are your views on the future of much-talked about e-commerce? How

much will e-commerce change the way we shop?



All segments of the industry in the US have virtual corporations. That
is because the US has built a high quality, high bandwidth

data-communication infrastructure. We in India are in the process of doing

so and it will take a few years. We have to have competition in the basic

services. It will solve the problem of last mile. Telephone should be made

cheaper than what it is today. If these things happen, e-commerce will

surely take place in India too.

Will language be a hurdle in doing e-commerce?



No. It is not a big deal to provide e-commerce in local language. But,
why it is still being done in English? Look at the telephone density in

India. We have something like 1.7-1.8 per 1000 people. Of this, 50 per

cent are in the corporate world. Of the remaining 50 per cent, 80 per cent

are in the major towns where English is generally spoken. That is the

reason.

The current trend seems to be of start up e-commerce businesses. What

precisely can Indian software companies contribute to in the global

e-commerce market?



The good thing about e-commerce area is that if you can bring anytime,
anywhere paradigm to the commerce, more and more people will start using

it.

Will it be services only again or do you see us developing products

that could gain international recognition in the e-commerce front?



No. I think Indian companies will continue to be, in a major way,
service providers for re-engineering existing applications as well

developing new applications for key enablers of business of corporations.

There will, however, be a small percentage of Indian companies which will

come out with e-commerce products.

What advise do you have for the start-ups in the e-commerce solutions

business?



First of all every entrepreneur must have a great idea. An idea which
will bring value to the corporation and/or to the individuals. Secondly,

his idea must be marketable. Third, the trend now a days is compression of

cycle time. Which means that our entrepreneurs must come out with their

products much quicker than they could five years back.

What has changed in the Indian software companies over the last two

decades?



The most visible thing that I can see is the shift from onsite
services to offshore model. Second, the Indian software industry has

become much more capital intensive. Thirdly, the industry has received the

critical mass of recognition from the Fortune 500 companies around the

world. It is no longer why India. It is how India, what cost India etc.

Fourth one, we have learnt to use satellite communications for

conducting business with customers. Fifth, as against debt being the

primary source of capital some years ago, today equity has become the

preferred source of capital. Venture capital has become primary source of

capital for start-ups. There is a clear recognition in the minds of

prospective employees of India that this is the industry which will give

them money. This has helped the industry. Finally, the entrepreneurs in

the industry has demonstrated that by running the company in a legal and

ethical way you can create very high market capitalisation.

You have pointed out the positive changes. What are the changes you

wish the software industry had not seen?



There are a few things that worry me a bit. Somehow, our young people
have neglected their chosen professions of electrical or other streams of

engineering to rush to the software industry. With the result, we do not

have high quality electrical engineers to build power stations, high

quality civil engineers to build dams and bridges in large numbers.

Second, the concentration of software companies in a few large cities is

not helping the cause of pollution control, of open system planning,

education, housing etc. Because these are people with reasonable

disposable income and are able to buy cars, houses and pay high rent. Vast

majority of urban population have been put in a disadvantage because of

this industry.

The third thing is because the Indian industry, government and PSUs

have not been found very attractive by the Indian software industry, we

have not been able to bring the benefits of all our expertise in improving

the competitive advantage of Indian companies.

We in India have a few world-class IT companies, both in size and

quality. However, we are yet to witness takeovers and mergers happening in

the software industry, as much as it takes place in the US. What are the

reasons behind it?



We are still in the primary stage of the development of software
industry in India. Here it takes much longer to create nurture and build

up the company to a critical mass. So the entrepreneurs will have to show

much longer commitment to the company. Which means that an Indian

entrepreneur is not in a hurry to sell his company to somebody and move on

to another because by and large the opportunities for Indian companies

lies in the services companies, which require much longer to build a

customer base.

When will the trend be seen here?



I think it will come when more and more Indian companies start
developing products.

What software technologies are expected to dominate the market during

the next 2-3 years?



It is very difficult to predict. Any technology that improves the
cycle time, improves the cost, quality, productivity of a corporation will

be the one that will be embraced. At the consumer level any technology, in

addition to these, will bring, better quality of leisure, better quality

of entertainment, better utilisation of their time, such will be the

technologies.

Which is the existing concept that will drive such technologies?



Obviously, e-commerce is very clear for that kind of a paradigm.

You pointed out that in India one can expect products in the next 4-5

years. Which are the technologies that will drive such product

development?



It is difficult to predict about four years from now. But, if I have
to bet on one thing, very clearly, it is the e-enabling of applications.

What are the untapped markets where you feel Indian software industry

still has scope?



US is perhaps the most opportunity intensive market. It is also a
market where the customers are much more open to outsourcing. So, in my

opinion US will continue to be a major market for India even into the next

millennium. However, Europe and the Far East have the potential to become

major markets for India.