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"Our advantage helps us open doors; our imperative is to build a big business out of it." - Views on News from Equitymaster
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  • May 19, 2001

    "Our advantage helps us open doors; our imperative is to build a big business out of it."

    Geometric Software, after passing through troubled times, has turned around recently. At the helm is Mr. Manu Parpia - a chemical engineer from McGill University, Canada and a post-graduate in management from the Harvard Graduate School USA. Mr. Parpia worked as a Consultant to Godrej & Boyce for seven years. After Mr. Parpia's taking charge as the Chief Executive in the Electronic Business Division, he brought about a major restructuring in the division.

    In an interview with Equitymaster.com Mr. Parpia spoke of Geometric Software's strategy in its lines of business, the outlook on software sector and the managementís vision for the company in the coming years.

    EQM: How do you see the software sector in India growing? Do you foresee another revision in the NASSCOM numbers?

    Mr. Parpia: The Nasscom revisions were only for one year (FY02). I think for any business by and large, one has to take a more long-term perspective. And I think if we do what we are supposed to do, like not depending totally on onsite business and concentrating on other areas like building a back office in India, I think the growth prospects for the software industry are pretty good. If we take a three-year perspective the scenario is quite encouraging.

    Another thing I foresee is that in the software industry there will be a clear segregation of the winners and the losers. This happens in any industry. In the initial stage everybody wins and then after while the consolidation begins. Those with a clear vision, better strategy and always an element of luck will survive and grow. Others will fall by the way side.

    EQM: The Indian software sector to a great extent has relied on cost leadership strategy. With China and other countries entering the arena, how do you see competition affecting the sector?

    Mr. Parpia: All said and done without getting too complacent, if we build on what we have done, I don't think you will find China to be a major competitor in the next two or three years. Let us look at different geographies.

    For the Japanese markets China is already a serious competitor. This is due to the cultural affinity of the Japanese for the Chinese. The Japanese find it easier to work with them. For the US markets Indians are the favorites. In Europe it's a question mark, as the Europeans like to use countries like Poland, Hungary where they have good talent and skill sets. Another advantage to these countries is that they are located right next door.

    So I think India is okay. The key thing here will be telecommunications policy. The costs have to come down. It's much better than what it was three years ago. But there is a lot of cleaning up to be done. Voice costs also have to come down. It will all depend on how we manage the infrastructure growth.

    I see lot of US companies coming to India to install their subsidiaries here for software development. That is going to be there real competition both for the resources and the business.

    EQM: Coming to the CAD/CAM segment, what are the growth prospects?

    Mr. Parpia: In the CAD/CAM market the mood is one of consolidation. Growth rate of the broad sector is about 15%. I think over a period of time not many companies will be around. With consolidation it becomes important that you are with the winners. For those serving any industry, where consolidation is taking place, the imperative is to be aligned with the winners. Today the CAD/CAM markets seem to be consolidating around four companies. They are Dassualt Systems, PTC, UGS and SDRC. Geometric does business with three out of four. The one left out is PTC.

    EQM: Where do you see the consumption for software increasing? Is it only for the design or for the whole process of manufacturing?

    Mr. Parpia: People feel that designing and doing geometry work will in three to five years become a commodity. Sounds good but probably may not be true. Easier said than done. What we are saying that complex problems of handling geometry will be handled. It will become easier to create and use geometry. You find the requirement of more and more applications for this. But an important factor is that the cost for underlying software would have to come down. At least for the simpler applications.

    A very interesting thing is to note viewing objects in solid form, and manipulating them should become more of an everyday affair rather than being the domain of a select few. But this also means that geometry must be integrated to the enterprise software. Traditionally geometry was in the design department. But now it will move out of the design department. Not because others will create geometry but will use it.

    For example if you are in the supply chain (take procurement for example) you need to see the part. You may need to make some change to the part or need to do some referencing with the part. Therefore, access to the geometry of the part is critical. This is deal under a field known as collaborative engineering. A market we are entering into, leveraging on our back ground in geometry.

    I think that geometry is going to play an important role in supply chain. That is why we have diversified. This is the shape we see the future taking that geometry becomes more and more integrated with data management and supply chain.

    Also if you look at it again you need to manage information about the products or the parts like who approved the final drawing, things like version control and keep a control that the proper version goes for manufacturing. All this comes under the area information management or more specifically, product data management.

    EQM: As of now where is Geometric positioned?

    Mr. Parpia: Six months ago, we were supplying software companies with solutions whether services or technology. Now we are moving to towards collaborative engineering and product data management (PDM) wherein we provide solutions to industrial customers directly.

    For the PDM solutions we have clients like Metaphase, MatrixOne and Aigner partner. In collaborative engineering we are a bit behind but I hope in the next couple of months we will accelerate. I feel pretty comfortable with the strategy we have laid out and its implementation.

    EQM: What are the markets for PDM and collaborative engineering and who are the top players?

    Mr. Parpia: Information management market is growing by 40 to 50%. And the collaborative engineering market is growing at about 100% but has a very small base couple of hundred million dollars.

    The top players in these markets are big boys IBM and KPMG. However the advantage we have is that we come from a geometry background. Creating designs gives us an advantage. We need to make sure that while we have an advantage in geometry we build our strengths across the board. So this advantage gives us a good way to enter but to grow we have to add to the knowledge base.

    Our advantage helps us open doors; our imperative is to build a big business out of it.

    EQM: In FY01 60% of the revenues come from projects while 40% came from products and components? How do you see that moving in the future?

    Mr. Parpia: I see the shift in this financial year (FY02) definitely towards projects. The reason is straightforward. We have sold one of the technologies to Spatial as result the revenues from this technology will not be there and it has become more of a project. The business model of all the components has changed; we have replaced the upfront cost replaced by a kind of royalty. The upfront fee is lower but the revenue stream is higher over the years. And the third is that we are definitely working to put more people on site. The contribution of onsite revenues is increasing. We believe that by selectively putting people onsite we will be able to grow faster.

    EQM: As the contribution of projects and onsite business increase will the operating margins come under pressure?

    Mr. Parpia: In the futures our margins will definitely dip by a few percentages but our objective is to see that the volumes make up for it, so the absolute number does not go for a toss. And second part is that we should continue to invest in technology and come off with new technology. This will add gravy to our bottomlines. On the other hand the projects business will bring in the steady flow of revenues. To grow in the components business we have to invest in technology.

    We are certainly not shying away from that. For the first time our chief technology officer has got a budget of Rs 10 m to just look at new ideas. And this is going to be the big differentiator.

    Another thing we are doing (and we are counting on its success) is that we are building a system that will allow our customers sitting in the US to map the progress of their project using the Internet. That should give us a good opportunity to ask for higher rates and maintain the margins.

    EQM: What is the topline growth you are expecting in the future?

    Mr. Parpia: Geometric used to grow at 50 to 70% every year and I would like to see that we maintain our traditional growth rate.

    EQM: What does Geometric do to get into a long-term relationship with clients?

    Mr. Parpia: What do you do to make a long-term relationship? First of all do your job well, execute successfully. Secondly you should have a high degree of integrity to a point where your customer trusts you. Then there has to be ease of communication. And the response time should be low, quick responses are essential. Supplying manpower and technology is required. Establishing a long-term relationship is by paying attention to the customer all along. Today I think we are a very trusted company.

    EQM: What is the percentage of repeat business?

    Mr. Parpia: In the past it was of the order of 70 to 75%. I think that is going to increase to 80 to 85%. The translator business had much more of an element of one off. But now all our businesses are becoming royalty based and more ongoing. So I see that percentage going up. But of course we need to keep adding new customers, which we are doing.

    EQM: What is your vision for Geometric?

    Mr. Parpia: We would like to move more into the consulting area for the manufacturing sector. I see us being a programming house with very high quality of programming capability and knowledge base. We need to capture knowledge base in a system, which can handle processes and control the process by which we write programs.

    We want to be a disciplined organisation that can go into a company and say look you have problems, we can give you solutions around this whether it is using a technology or services or combing them. I think to do this we need to do two things. One is build our processes, which we are now working on. We are looking to get SEI certified. The second is to build a good management team.

    I think we have got a great strategy in place. The move out of pure geometry, into related areas where we can play on the strength of geometry and the move to add industrial customers to our base is smart. But the key will be implementations. We have to make sure that we do not falter.

    EQM: What will be one key factor that will decide your success?

    Mr. Parpia: Management and leadership. Geometric has got a strong technical team in place. What we need to do now is to build a great management team.

    EQM: Three people who have influenced you the most?

    Mr. Parpia: Three people who have influenced me the most are my father because towards the end of his life he was my best friend, Mr. Naval Godrej, who very helpful and Mr. Vasant Seth who was the chairman of Great Eastern. Their wise words and advice helped me to be determined to move forward.

    EQM: Three books that have influenced you the most?

    Mr. Parpia: 'Built To Last' - after I read that book I came up with our theme 'People building partnerships' because that's what I feel will help our company build lasting relationships. Then other one is called 'Innovators Dilemma'. Its about how manage technologies in a fast moving environment. Then 'Crossing the chasm' gives you good insight into launching technology or product.

    EQM: What takes up your time apart from work?

    Mr. Parpia: I enjoy traveling to see different cultures and different parts of the globe. I would say travel for leisure.



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