Nandan Nilekani, CEO, Infosys: There are certain segments of the IT outsourcing market that just collapsed. For example, lot of venture funded companies in the telecom and even the large players in telecom have cut back on R&D spending. So the focus is on large well-established companies and their IT spending. And even they are looking at it in a much different way, and more carefully. They no longer have the pressure of worrying that a dot-com will come and eat their lunch. There is a very stringent focus on ROI. Every investment decision is being tested to a much harder bar. Cost reduction and productivity improvement is the name of the game. Getting more value for less money.

Vivek Paul, Vice Chairman, Wipro: Today it is almost a given that any large company should have an Indian offshore strategy. As a result the number of inquiries has gone up and interest levels are very high. At the same time, while interest levels are high at a senior management level, we haven’t seen a change in the attitudes at an operating level in terms of outsourcing to India. I think that’s because the pressure is highest for senior managers in terms of meeting Street expectations.
As you see more projects go to India, you are actually seeing an interesting trend where on a percentage basis there is regression towards more maintenance work. When a company says, “I have to have an offshore strategy,” they have changed from the model they had before, which was “I need a project done I’ll bid it out and give it to whoever is the most competitive.” Now they are saying, “I want to offshore this project,” so the offshore component is a pre-requisite and they are not even inviting the non-Indian companies. They specifically pick out projects that they think they want to send offshore. And they pick out the low risk non-mission-critical projects. Also, many of the new application development has come down because people are not spending in areas that they don’t have to.

In this economic climate, what are the marketing challenges of promoting India as a place to do business?
Ajai Chowdhry, CEO, HCL: If you look at the Fortune 1,000 companies, India is no longer an issue — those who know don’t have any issues with it. But there are still many, many companies that haven’t taken the step to visit India or talk to some large or medium-sized Indian companies to figure out what they can get from India. The opportunity is still pretty huge for companies to work with India.

Nilekani: In the boom years there was business for everybody and the demand side was pulling the whole thing. The problem then was supply side issues — managing growth, hiring people and so on. Now it’s a demand creation market. You have to work much more with customers to really carve out projects that are adding value either in terms of cost reduction or revenue enhancement. So the marketing and selling effort has to be much more tightly focused.

India is now very well regarded. And is now being seen as a much wider outsourcing opportunity. It’s not just about IT services. It’s about business process outsourcing (BPO), systems integration and R&D.

Mahadeva:We have to go in and convince the CIOs, and then the CIOs have to convince the CFOs. There has to be contact with the HR group because a substantial number of people are impacted by changes in the business process. So it has been removed from the stage when you could do it quietly with the project manager in a corner and no one would notice. The sale has changed and you have to make that sale at a more senior level.

F. C. Kohli, former Deputy Chairman, TCS: India is a brand. So that is not a problem! At this stage there is no alternative to India. Perhaps the Philippines, but I don’t think India should worry about Philippines. I would not consider China at all because all our systems are in English, and the number of colleges that are working on the computer science area means that India can provide a lot more people than any other country.

Then there is one other point that we are considering very seriously at TCS and other companies. We have recently done an analysis on what a software application development requires, and we have found that there are six levels of workings. The first three levels do not require engineers; they need graduates who can be trained to handle those things. Until now India has been putting engineers in all kinds of jobs, but in the future India may be able to bring down those costs.

Madhukar Dev, CEO, Tata Elxsi:Key decision-makers in companies often think that outsourcing is a substitute for the employees that are currently on board. At best what happens is that companies that outsource will put a freeze on recruitment. But they will never say that because they are outsourcing they are laying people off. Also, in-house engineers often think that there is nobody else who can match up to their capability. And for them to realize that there is good quality capability outside of their organizations takes a bit of chipping away on our part.

How do you perceive the impact of the U.S. economic downturn and 9/11?
Kohli: The downturn came 12 to 15 months before 9/11. First all the body-shoppers disappeared. There were a lot of small companies doing body shopping to the U.S. After 9/11, for a month and a half no one wanted to leave the U.S. Now the process has regained its momentum.

Dev: The greatest change on the customer side (irregardless of 9/11) is an element of uncertainty - of many types. You are talking to some key executives and individuals and because of the downturn in their business these organizations themselves are in a state of constant churning. The individual himself doesn't know what his role at the company will be. That has affected the pace at which we are closing business. We've put a lot more thrust to our sales and marketing effort than ever before. We think we have figured out how to develop technical capability. That necessitates a stronger sales and marketing organization.

Mahadeva: Since 9/11 there is five times the attention paid to security and business continuity planning. So it’s important for anyone — especially for companies doing larger deals — to have extremely good business continuity planning and both physical and network security. I think there was a brief period after Sept.11 where everything sort of stopped. And there was certainly a concern that India is almost like Afghanistan, its neighbor. And people asked, “Should we be doing stuff there?” I think people looked at it more closely, and said that it was something they felt fairly comfortable with.

As you compete to get deals in the United States, what are the key capabilities that you can show to customers? What are customers looking for?
Chowdhry: A couple of things that customers are starting to look at more in-depth is what kind of domain knowledge capability you have, and what the range of that capability is. They don’t want to deal with 10 different vendors for 10 different things. They want to have one or two vendors who can take care of most of their requirements. So they are starting to look at the larger vendors from India more deeply.

So how do you match up competitively with U.S. IT services giants like IBM and EDS? ?
Mahadeva: Everyone has announced something offshore because I think they [the large U.S. players] have finally woken up to the fact that this is real and they need to so something to respond. We don’t see them wining any deals — maybe their capabilities for a global delivery system are not mature enough, or maybe they are priced too high. Increasingly the field is narrowing to the large Indian firms. Wipro, Infosys, TCS, Satyam and ourselves seem to be in the final stages of a lot of these deals, and this seems to be happening more and more. Clients are certainly listening to EDS and IBM Global, and eventually they will be a significant threat.

Paul: The good news is that there is nothing you could look for as a more visible indicator that offshore is here to stay than all of them [large U.S. IT services vendors] having to follow the trend because they have no choice. If you look at it from a competitive standpoint, the reality is the company of the future is going to be a global business. At this point there are two kinds of companies — the U.S. companies that are trying to build that delivery capability in India and the Indian companies that are trying to build that pipeline to India. And it’s going to be a tussle out there.

To what extent has outsourcing to India gotten the mind share of U.S. CIOs? ?
Chowdhry: When we talk to U.S. CIOs, we get the sense that they feel that not only can Indian companies add value in terms of the skill set, but they can also add value because of the processes that we use. Most of the Indian companies have SEI CMM Level 4 and SEI CMM Level 5 capability. So when we go into some of these corporations, we even offer to work with them to make sure that both the companies can come up to the same speed in terms of process.

Mahadeva: Five to 10 percent of Global 2000 companies are thinking of outsourcing to India. It’s a small percentage, but they are the biggest and the most powerful companies — American Express, Bank of America, MetLife. They spend a lot on IT, they are the leading thinkers, and I think they will set the trend for the others to follow. So the penetration is low, but the leaders are thinking of it in a big way and there’s big mind share. If you go to American Express, they’re thinking of billions of dollars in outsourcing to India and huge corporate initiatives at the highest levels. GE has been doing this for quite a while. It hasn’t penetrated into the second tier of companies yet, but it is likely to happen once the leaders show the way.

What are the key Internal HR and operational issues that you have dealt with? ?
Paul: While everybody in the Indian IT space built up head-count in anticipation of growth that was more than what ultimately came through, most of us have used the business growth to suck up the bench that we had. And as customers are becoming more open to outsourcing we’re hiring more specialized skills.
Customers focusing on offshore has created more price competition. It has put Indian companies on one platform and forced them to go against each other. As a result of that price pressure, from an employee management perspective there is more discipline in terms of how you look at salary increases and all of the luxurious perks that used to go along with being a software engineer.

Mahadeva: Many companies have found that in dealing with some of the large Indian players, a year later the deals have not ramped up. Why are they not ramping up? Because they are not equipped to manage the change within the company and so they run into political roadblocks or whatever and they find that it goes much slower than they had planned. We have a change management capability so we can put the program together and have all the pieces in place to make the deal ramp up quickly. That is the challenge we all have to face — to have the capabilities in place to make these larger deals work within the client company.

Dev: One lesson we have learned is that for each technology it is important for us to have a complete cross-section of customers. You need the big boys and young startups but you can't depend purely on either the big boys or small new companies. Wherever we've had a good mix we've not been affected by the downturn at all. Where this mix was not there we were very badly hit for several months. In some of our geographies the customers were only the small guys. But the work that we were doing was very exciting. But some of those just wound up operations - sometimes without paying us.

What do you perceive for Indian IT in the future? ?
Chowdhry:It’s still very early for outsourcing here. There’s tremendous opportunity and it’s a huge market. I think more and more opportunities are going to come for most Indian companies because we are addressing a very small portion of the total outsourcing market — it’s in single digits today. It’s been a tough year, but I guess what we’ve seen in the last two or three months is that there are a lot more RFPs. Things are looking up.

Kohli: We are producing 3,000 top-class graduates from IIT, and we have another 50 to 60 colleges where we have people of the same quality. Yet the students that emerge after four years from these schools are very different. We are doing a very thorough gap analysis between these institutions — the libraries, the faculty, the curriculum. We think if we can attack that gap then we will have 30,000 people instead of 3,000.

We also want to make these institutions stand-alone and be able to manage their own finances. They won’t have to worry about it and will be able to pay their faculty according to market rates. We want a very healthy graduate program within the country.

Computerization is going to happen in India also. You cannot have a billion people in India without IT. It has taken hold, and in another five or six years, I think the demand within India for IT will be as much as demand outside. Then the real fun starts.
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