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'Industry, academia must come together'

Economic slowdowns spare none. The mighty feel the heat of the downturns as much as the weak do.

However, Tata Consultancy Services -- India's largest unlisted software and services company -- has managed to lessen the impact of a severe crisis with some foresight and pro-active measures.

S Mahalingam, Executive Vice-President of TCS , has seen the changing scenario closely. Here he speaks about the slowing down of the economy, it's recovery and India's chances to grab more opportunities in the global market.

TCS was set up in 1968. The company pioneered the hugely successful offshore delivery model that catapulted India into stardom in the technology world.

The IT giant is a division of Tata Sons. It registered revenues of $690 million last year. For the past few months, there's been a buzz in the market about the company going public.

However, TCS officials have maintained a stony silence over the matter. The company has over 800 clients all over the world and more than 19,000 employees.

Mahalingam speaks to Shobha Warrier in a rare interview.

The general feeling is that the worst is behind us and the economy is showing sign of recovery. Have you noticed any difference?

In this industry, there are no immediate lead indicators. Once the economy picks up, companies start exhausting their inventory and plan for additional manufacturing activities.

That is when we start looking at many of the system enhancements. To that extent, I think, it will take a little time before we start seeing the difference.

We are, however, not looking at 100 per cent recovery this year.

You see, there are three types of businesses. First, maintenance and enhancement of the current system. Here, you are not changing anything fundamentally.

The second one comes as either the result of the extension of business or reengineering.

The third one is evaluating new technology. So the question is, where do you see the effects of changes?

As far as maintenance and enhancement are concerned, those activities have not come down even during the difficult times because people have to maintain the systems they have. But the new technology player is absent now.

When did you start feeling the pinch?

The downturn started in 2000 but the budgets for for the year were already made. So people were spending money and we did not see the effects of the slowdown until the end of the year. 2001 was when we actually saw the slump.

The only way you can continue with maintenance and enhancement is by transferring it to offshore vendors or by seeing whether things can be done in some other cost effective fashion.

Many people have already taken these actions, and a lot more work is being transferred offshore. Whether the economy improves substantially or not, the offshore option will continue.

Will you call this a short-period slump?

The slump has been there for almost two years, and I will not call this 'short-period'. We got the feeling in March 2000, and it became more pronounced by June 2000. By the end of 2000, the confidence was lost. So I will say we have had a two-year run and by no means, can you call it a short period! In this industry, a two-year period is quite long.

What lessons has the IT industry in India learnt from this slump?

A very critical one is that when the budget is cut, contract people can be laid-off. I cannot terminate my employees but I can terminate the contract persons whose level of understanding is much less than that of a regular employee.

The industry as a whole understood that these are the layers that are easily replaceable.

The biggest lesson is that it is necessary to understand your business model; you should know whether it is really going to add value to the customer.

For the Indian IT industry, the US is the main market. After the recent slowdown, will you start looking at other markets like the Asia Pacific, Europe, etc?

I am not denying that pioneering effort is required to conquer new markets. But first you will have to know where the market is.

Secondly, you have to know how difficult or easy it is to access that market. Difficulty can be in the movement of people; it could also be the peculiarities of the systems, for example, the financial systems. Language is also an issue. Other than UK, language is a problem in all European countries.

Yes, all of us are exploring other markets but it is not that easy. Over a period of time, you do not want to be dependant on one market alone.

Some time back, Azim Premji said TCS was the only company that explored the domestic market. How different is the Indian market from that of the US?

The Indian market is quite different from that of the US. There are some fundamental differences. One, the penetration of IT is not very high in India. If I cannot interact with other companies in a digital fashion, obviously, there will be some limitation.

Secondly, it is pretty costly over here. Today, I can do business in the US with my people and earn a certain amount of money. But even with a more experienced person, if I can only get one third of the revenue in India.

Thirdly, the level of sophistication of the users is poor. When I roll out a system in any mature market, there will be clear acceptance. Whereas many organisations in India - I am not talking about the large organisations, the medium ones - they are not prepared. There is always a question in their minds, should I accept? The market is not matured enough.

Are you happy with what the government has done to develop infrastructure?

Fundamentally, in the last few years, there has been a sea change.

Is it enough?

Well you see, I need power, proper communication and people. Power availability has become better but not the quality. The cost of power generation is very high, as I need to have generators, etc.

Communication links can certainly get better.

Thirdly, I am trying to communicate to the government that it is necessary to look at the whole infrastructure. You cannot turn around and say that there is one Tidel Park here! What we need are more such parks.

We should have an expatriate friendly atmosphere. People go to Malaysia. Why are they not coming to India? That is because Chennai and Kuala Lumpur are not comparable!

Is there no political will to change the system?

I don't think political will is the issue. If you take the southern states and Maharashtra, Madhya Pradesh and West Bengal for instance, the political will is there. All those leaders understand the power of information technology. But the issue is legacy, and also fiscal ability.

In the last few years, I have found that they (politicians) want to do something but there is a system through which they have to work. If you ask me, I will say they should move faster. I also know that it is very easy for me to say that.

The problem is, the more the delay, the more is the cost.

At the Technical Education summit organised by the CII and AICTE, you commented that the quality of engineers that you get from various universities is very poor. You said you had to spend a lot of time, money and energy to train them.

It is a fact that India's success in IT is due to the products that have come from these technical universities. There are very few countries that can replicate this success. But the problem that we face is, these products cannot be taken instantly to productive work. We have to make them whole products from the technical and personality point of view because we have to present them at the global level.

So what you need is a finishing school. Maybe much more than that. Industry and academia should come together to solve the problem.

Every year, India produces 1,50,000 engineers. Will the industry be able to absorb all of them, or at least the majority of them? Or, will we see millions of unemployed engineers soon?

If we are looking at 2008, we are talking about $50 billion (NASSCOM projection of the level of Indian IT business in 2008), there is enough capacity to absorb them.

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