"In five years we want to be a services company that makes computing affordable". - Views on News from Equitymaster

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  • May 4, 2001 - "In five years we want to be a services company that makes computing affordable".

"In five years we want to be a services company that makes computing affordable".

May 4, 2001

Mr. Manoj Tirodkar, Executive Vice Chairman, Global Tele-Systems Limited, is set make the most of the second wave of IT revolution expected to grip India. But interestingly Global Tele's business model is not only focused on software but also on the IT enabled services market that is in a nascent state. It is one of the first major Indian corporate that has planned to have a significant chunk of its revenues from the IT enabled segment in the near future.

Mr. Tirodkar in an interview with Equitymaster.com discussed the prospects of the IT industry in the country. He also talked about Global Tele's future strategy to dominate in the IT enabled services space.

EQM:  What are your views on the growth prospects of the Information Technology sector in India?

Mr Tirodkar : I am quite confident of the NASSCOM projections for 2008. When you look at the slowdown of the information technology sector in the US, it is primarily due to the bursting of dotcom bubble. This caused the tech spend by these companies that have been wiped out to suddenly stop. But if you look at telecommunications and information technology as a market together, the size is vast (from the numbers we have telecom equipment market is worth US$ 300 bn and the IT market is approximately US$ 500 bn). Now, India’s share of this (US$ 4 bn) is very low. India’s role in the global market place has been limited to a certain extent to providing skilled manpower but now its slowly evolving into areas like IT enabled services. A whole new market is going to emerge. According to NASSCOM figures the growth of IT enabled services and IT services in going to be more than that of software services. From that perspective you have not seen anything in the area of IT enabled services. For example people like us who did not have any capacity a year ago in call centres today have more than a 1,000 seats. Within two years we are expecting this figure to go up to 2,500 seats. We are expecting revenues of Rs 1,000 m and the figure is expected to go up to about Rs 2,500-3,000 m in the next three years. We are just one player. And I am talking of only one business call centre. There is a lot more we can do. Therefore, there is a huge scope.

But to meet the numbers a series of initiatives have to be taken. Bandwidth has to be increased, cost of bandwidth ownership has to come down. The government has taken a lot of positive steps.

Over a three to five year period the sector has a tremendous growth potential. But of course the industry will be subject to the law of supply and demand globally. The profitability will depend on each companies strategic positioning. Regarding the immediate impact well, I can answer specifically for our company. Our exposure to the US markets is very low. Of our total revenues only 35 to 40% comes from exports and of this the market share of US is 30%. This comes to only 15% of our revenues. Therefore, impact if any would be negligible. There may be a temporary slowdown in the next one year but I don’t see it lasting for a three to five year time frame.

EQM:  Considering the IT enabled services industry what is the value proposition and what is the upper edge for India?

Mr Tirodkar : Let me go back a little. It all started with the low skill Y2K work, which gave a lot of Indian companies the chance to earn valuable US dollars. These companies utilized the dollars to get international talent for marketing. So they boosted their international penetration. Again from the business they got they develop offshore development centres (ODCs) and partnerships for the best software companies in the world. As a result they were able to create the most talented pool of human resources. These companies with huge market cap, no debt, substantial amount of cash flows and profitability are now venturing into domains they dithered to enter like research and development, product making and technology development (R&D). My belief is that in a four to five year time frame this will lead to a next generation of IT revolution in India, in the sense that India will start participating into R&D, engineering, product ownership and other areas.

Next step would be if we could start branding. Can we really start being involved in outsourcing at a higher end? I think that has already begun and is reflected when Infosys gets US$ 32 per hour billing rates for work done in India against an average company that a gets US$ 20-22. There is a marked shift because of the quality of the work they do. Due to the brand they can dictate a premium. This is where the Indian companies will start to shift that is not to say that Indian companies will stop body shopping. There will always be two or three kinds of suppliers.

The value proposition is going to be that we have high quality and well trained engineers, who go through an education system that has one of the lowest costs involved. Therefore, these talents can be made available at very competitive prices globally. Two, if you take China, Philippines its not just about English language. It has more to do with how we are perceived. Traditionally if it has not been IT then it has been engineers and doctors from India. Therefore, India has developed an image of learned fraternity. I think it’s the Indian brand.

IT or telecommunications is about knowledge. And knowledge requires investment in training education R&D, marketing and product launches. We are not aggressive about this today. We have been services suppliers traditionally and we continue to be that even today.

EQM:  When you talk about IT enabled services you say branding would provide an edge to the Indian companies. What about IPRs (intellectual property rights)?

Mr Tirodkar : Companies like ours have already started creating IPRs. Seven year ago we had realized intellectual property rights were important. Also we knew starting from scratch and developing software was not easy so we partnered with international giants, paid for the license and also got the source code so that we could make some fundamental changes and customize the software. We have huge revenues from licensing these modified software.

As we started to do this we began to understand the importance of being at the forefront owning an IPR or co-developing it. Many people have started this slowly like Infosys and I-flex. But this requires a lot of investment. For example, we have invested about Rs 1,600 m for buying software licenses.

EQM:  What business does Global Tele do in the area of Engineering?

Mr Tirodkar : We build networks cellular telecom, basic telecom, corporate and multimedia. We begin from scratch design of the networks, supply hardware, make it operational and most importantly maintain it. Over the last three years we have begun to substantially pull out of hardware content of the business. We continue to do hardware for multimedia and corporate networks. But we have stopped supplying hardware for PSTN (DoT) and other operators. We supply services. Say if you are an operator and want to set up networks all over Maharashtra, then we will do the network planning, network diagrams, implementation, commissioning and maintenance. Just as you would have hired a software engineer for software development you hire network engineers. That’s what the engineering business is all about. Our customers include big companies like Ericsson, State and Central government bodies. It is about providing engineering services to infrastructure developed by another operator. Currently we are doing this job on a large scale in India but we plan to expand to the Middle East, Australia, Singapore and Europe. The revenues from this business is expected to be about US$ 100 m in the next three year from the current figure of US$ 15-20 m.

EQM:  How do you cope with rapid technology obsolesce in this area?

Mr Tirodkar : Our perspective is that of a software services company. The customer decides what technology he wants. Our job is to deliver what he wants, be it broadband, wireless and local loop. Therefore, we have to invest in competence centers to train our employees. Also, we have to be in constant touch with the customers because they are far more progressive than the suppliers themselves. You have to form partnerships with technology providers, suppliers and customers to ensure that you remain ahead in the race.

EQM:  What is Global Tele’s business mix? How do you see it changing in the future?

Mr Tirodkar : The contribution of software is as high as 45% of revenues. The other contributors are 30% to 35% from engineering services, 10% to 15% out of application services (which includes call centers) and 10 to 15% from Internet infrastructure business (which includes data center management services).

We would like to have only three divisions or something like that in the future. Going forward we would like to earn about 20 to 25% of our revenues from application services as we feel call centers and CRM (customer relationship management) have great potential. Software would drop to 30 to 35% and engineering services to 20-25%. The remaining 15-20% would come from Internet infrastructure.

We have such a diversified business model that we are least likely to be affected by the slowdown, as we are neither a software company nor a body shopping company.

EQM:  What is Global Tele’s technology focus?

Mr Tirodkar : One thing you have to understand is that since we came into this business from the telecommunications side our focus on technology is far stronger. In 1992 we started Global wireless technology, which was a manufacturing facility but we, transferred the expertise (in the wireless technology) to this business therefore we have extensive knowledge in wireless business. We were the first to lay optic fibres and set up Global E-commerce services data backbone way back in 1995. It is India’s largest privately owned network. We have installed gateways, VSAT networks, corporate & multimedia networks and voice & data networks. We have a lot of experience with technology on the telecommunications side. We are relatively new players in the software segment but we are strong in the area of messaging. This is because we were the first to deploy EDI (electronic data interface, email and e-fax). Therefore our experience of messaging and transaction processing on the net is vast. Today when we look, it is e-secure or e-pay (area where we have initiatives and advances) that drives the banks payment gateways. We have written process around the core engine that has been supplied by Verifone. We have not exploited any IPR beyond licensing it to our customers.

The focus is really wireless technologies, broadband & fibre optic networks and multimedia corporate networks.

EQM:  How do you see the future five to ten years from now?

Mr Tirodkar : We are in a transition state. The future is really to be able to provide affordable computing at a reasonable cost. Fifteen years ago servicing a telecommunications product was great but then the activity got commoditised quite rapidly. So is the case with the software services industry too. Supplying skilled manpower is a commoditised business today. As you move forward and the Internet gets more powerful everybody would want to transact on the net. The key factors in doing that are being affordable, hassle free, easy and something that will ultimately be plug and play. Only then will it succeed.

If you ask me what do you want to be five years from now, I would say a services company that makes computing affordable.

EQM:  How do you intend to keep your geographic business mix?

Mr Tirodkar : Currently, about 35% of our revenues come from exports. We would like this figure to go up to 55-60% in the next two years. We would still like to earn 40% of our revenues from India as we strongly believe that it is one of the world’s largest economy. It has a tremendous potential to grow given economic and political stability, which we feel is falling into place. We would like to earn 50% of our exports from the US. This comes to 30% of our revenues and the remaining 50% of exports from Europe and Asia.

EQM:  On the personal front, who are three persons who have influenced you the most?

Mr Tirodkar : I don’t think people as such inspire me. I am inspired by incidents, success stories and global phenomenon. If you look at Japan a few years ago you would have thought you are looking at a superpower in the making but today we all talk of how bad the Japanese economy and stocks markets are.

Then again there was the oil crisis in the seventies and we felt that oil prices would touch US$ 100 a barrel but two years ago the oil prices touched their lowest at about US$ 12.

Germany before the Second World War looked, as it would engulf the whole world.

The lesson here is that no nation, business, company and technology has a life cycle. Therefore, when it peaks or when it goes out is very difficult to know. Therefore my effort is to create a company that is agile, that lives day to day, that has the approach of a fireman and that has willingness to change, which is so rapid that the observers (fund managers or analysts) think that you are going too fast or you are changing too many things.

I feel incidents like these influence how I think.

EQM:  Please tell us about the books that have influenced you the most?

Mr Tirodkar : A book by Donald Trump on his life and some of his theories, a book on what does success mean in a economic environment for a company’s ups and downs and the third one was Iaococa turning around of Chrysler as a company.

EQM:  What takes up your time outside work?

Mr Tirodkar : My paranoia about the ultimate success of this company. About being able to convince the market place that we have a strategy, conviction, commitment through which we will ultimately deliver in value terms.

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