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| 'When we compete, it is always on value' |
| Bibhu Ranjan Mishra & Ravi Menon / Jul 11, 2009, 00:01 IST |
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 At Infosys’ first quarter results’ announcement, company CEO & MD, S Gopalakrishnan, looks relieved at beating market expectations but admitted that “we are not out of the woods yet”. His prescription for the short-term is caution, while he expects Infosys’ services depth and negotiation skills to see through the company in the medium to long-term. Excerpts from his conversation with Bibhu Ranjan Mishra and Ravi Menon. Edited excerpts:
What does your guidance (projection) for flat growth imply?
We had a sequential decline of volume by about one per cent in Q1. Though less than what we had originally projected, it’s still a decline. When the volume growth is not there and there is a decline, we felt it’s better to project a flat growth for rest of the year.
Will this force you to compromise on your billing rates?
Both Yes and No. We need to understand the environment in which we operate and show some flexibility on billing. We had projected that our revenue-per-employee would decline this year by about 6 per cent in the beginning of the year. Now we are saying it will decline by about 5 per cent. That’s the reflection of the environment. When I say No, it means that we don’t compete as the lowest cost provider, but we compete as a value provider. We don’t use pricing as a lever to win business or to get volume. When we compete, it is always on value.
How does the environment look like now?
The environment continues to be challenging and it’s volatile at the moment. We are expecting that IT spending will come down by between 6-11 per cent, as companies are reducing their spending. And because the environment continues to be challenging, though the budgets are finalised, the confidence is not there in spending that money. So, the projection is that IT spending this year will be less and the industry will be impacted.
You spoke about strengthening the sales team even during the downturn.
In a normal year, the sales and marketing expenditure automatically grow in absolute terms because of the growth. In this year, there is no growth and we have projected a flat year. But we have to continue to invest in sales and marketing to prepare ourselves for the future. We are adding another 100 people to our sales team, since we are investing in new business models, new solutions and services lines like SaaS. This will require us to build new sales capacities. We are also expanding in different geographies, like the Middle East, South and Latin America. We want to increase our revenues in China and India, which will require a lot of sales expertise.
Do you see the protectionist rhetoric from the US fading?
Currently, the effect is minimum because in the US there has been some restriction. The (anti-outsourcing) Bill has been introduced in the US Congress and we have to wait and watch to see how it is taken forward. But unemployment there continues to be high and that is an area of concern.
What about your acquisition plans?
Acquisition is a focus area for us, but we are very clear that we want to acquire the right company for the the right reason and right price. And if we find the right company, who wants to be acquired, then you will see us acquiring. We have a dedicated team who are focused on acquisition. Our goal for acquisition is for strategic reasons — to fill in gaps in services, accelerate our entry into certain markets. In terms of services, the gaps may be in consulting, package implementation and BPO, where we are looking for a strategic acquisition to enter a market faster. We need to increase our revenue from continental Europe, including Germany and France, and we want to grow faster in China and Japan. So, the second reason for acquisition is country penetration.
What are the plans to make these subsidiaries profitable?
The losses made by the subsidiaries have come down. We are working out ways to make them profitable. Overall, the consulting business is doing well. The China business is still in investment mode, but they are very close to break-even. Mexico has broken even this quarter and has made a slight margin.
You made the largest number of offers to freshers last year. Was it a good move?
From an employees’ perspective, here is a company which is willing to honour these offers, is willing to give them training and keep its commitments. When we made these offers last April (2008), we had the best second quarter last year, when we achieved 7 per cent sequential growth. That’s the period when we had made the recruitments. And once we made the offers, we said let’s honour the offers, as we are confident about the future. In the short-term, it is volatile, but we are confident about the future.
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