-------------------------------------------------------------------------------- Customers say the budgets for 2009 will be lower than this year, but the allocation to offshore will increase. Mr S. Gopalakrishnan, CEO, Infosys -------------------------------------------------------------------------------- Shamik Paul Vishwanath Kulkarni Bangalore, Dec. 1 The mid-September meltdown, that spelt doom for some of the largest financial institutions, has in a single unanticipated stroke changed the way the world is, but much of the impact on the large Indian IT services providers is still limited to slower growth rates, says Mr S. Gopalakrishnan, CEO and Managing Director, Infosys Technologies Ltd. With probable recovery as far away as early 2010 and the present still being uncertain, Mr Gopalakrishnan in an interview with Business Line, talks about the challenges the industry is facing as well as the strategies Infosys has in place to fight the global economic recession. Excerpts from the interview: What sort of changes you have seen in the last two months? Companies previously thought the recession will not be as bad as this and now they have swung to the other extent and say this is as bad as it can get. Then, there is concern about when the turnaround starts and how long the recession will be. For large Indian IT firms, the situation is that unless you are working for one of the companies which were shut down or which were severely affected, you will only see a slowdown in growth. Fortunately, we were not working for one of the companies which declared bankruptcy. Where somebody got acquired, we have benefited by that part of the integration process. The immediate impact for us is more from exchange rate fluctuation rather than slowdown. The slowdown impact is gradual. When you talk of integration related opportunities, what signals are you getting from customers such as Bank of America or RBS? I can't talk of specific customers. We have been in touch with customers who say that by and large the budgets (for 2009) will be lower than this year. But the allocation to offshore will increase. That's what we are hearing from our clients. When do your clients expect a recovery? There are already indications that offshore outsourcing will increase next year and we need to see how we can take advantage of that. When recovery starts happening - the current thinking is that it will be in the early part of 2010. 2009 is going to be a difficult year globally. But, how's the interest from new prospects? The interest is there because even during slowdown, offshore outsourcing is one of the areas where companies can increase their predictability and reduce their costs. We have customer visits still happening. Last week (Mumbai attacks) has been another challenge. We have to wait and see. I still feel that visits may slow down, but business will return to normal. Are you witnessing any pricing pressure? A: One of the trends we are seeing is that companies are trying to consolidate their vendors. They would give larger volume to fewer partners and expect some discounts. That's the pressure you see. It is not the pressure but you get discount for higher volumes. How do you compare the current pricing pressure with that of 2001 slowdown? 2001 was entirely different. It was a pricing bubble. At the peak of Internet boom, prices had shot up by 40 per cent and prices came down dramatically. That situation is not there today. Prices are very reasonable and normal. We don't see any pricing pressure. If you look at last eight quarters, seven of those quarters we saw pricing increase. Now it has come down. We don't expect it to decline; probably it will stay flat. Prices are now reasonable. The bubble which was there in 2001 does not exists today. Would low volumes be a concern in the current slowdown? We were growing at 100 per cent then and came down to 30 per cent. So volumes also came down. Now the revenue impact is due to the exchange rate volatility. Volumes are okay now. It is not going down unless one of your larger customers goes out of business. There is slowing down of growth, but that's due to slowdown. Do you expect the growth rates to come down further post this downturn? In the medium to long-term, I do not see why it can't be even above 20 per cent, and the reason for that is our market share is small. IT spending is around $800 billion plus and India's share is $40 billion. There is no issue of market out there. This model has been proven, mature, and has grown to a significant size and scale. I do not see any reason why offshore outsourcing will not continue to grow. Individual companies will continue to grow at different rates based on which industry they are in and what is their strategy. That would differ from company to company. I don't see any reason why the growth cannot be higher than 20 per cent. The recession is spreading to other verticals such as retail, manufacturing etc. How do you see that impacting your business? Growth is slowing down and that is reflected in our guidance. Manufacturing is still a strong sector for us. We have customers who are very small today who have potential to grow, and then there are customers who came in this quarter, who potentially growth engines for the future. So, you are you are able to add more manufacturing customers in the last two to three quarters and that gives continued momentum to the sector. Even if your existing customers are flat, you add more customers and that's the reason why we are growing in some of the sectors. By and large, we are working with all the major companies in the BFSI sector, where the market is coming down because of consolidation. Growth has to come from existing customers. But in other sectors, there are opportunities to bring in new clients. Has the volatility in the market prompted any change in your hedging strategy? We are looking at more complex instruments, and we are also looking at multiple currencies now. It is not just dollar and rupee. You have to look at the Euro, Yen and all the major markets and then decide what to do. So it becomes more complex. But our window, our focus is still the short-term because we still believe the volatility will continue in the short-term. The cover is based on net receivables based on two quarters, but it is now applied against multiple currencies. Previously, we were focusing only on the dollar and the rupee. The window has not changed. The amount is calculated based on the window. But now the basket now contains multiple currencies. Given the change in the economy, is your focus on acquisition still on? Our principle is that if you find the right company at the right price and if it is a strategic fit to our company, then we will look at acquisitions. We are still looking at acquisitions, but we will not buy something because it is cheap. Similarly, we will not over pay just because we want to do acquisitions. Those principles have not changed. If it fits our template, our principles, then we will look at acquisitions. Geographical expansions are very important for us. So we have been saying we will buy companies in Germany, France and Japan. Media reports that you have your eyes on SEAL Consulting? No idea. I would not like to comment on whether somebody is looking at it or not. I don't know that company. http://www.thehindubusinessline.com/2008/12/02/stories/2008120251690400.htm Who is wise? He that learns from everyone. Who is powerful? He that governs his passions. Who is rich? He who is content. Who is that? Nobody - Benjamin Franklin --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. 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