When Microsoft went into India, what was the strategy, and what were the expectations?
Rajiv Nair: We as a company like to invest early in markets. Back in 1986, we signed our first distribution agreement in India and this was way before distribution was even considered to be something that would be big in the future. Between 1986 and 1990 we worked through the distributor. Then in 1990, it became clear that we had to invest in India, and we understood this before any software company had set up. In April 1990, we set up our own operations in the country. The goal at that time was very simple — it was to make sure that our products were out there with customers. That involved two things. One was to build a channel because no channel existed for software distribution in those days, and make sure that the channel was highly technically proficient in supporting customers, because we didn’t have our own infrastructure at that time. The second goal was to make sure that that Microsoft Corp. had a licensing agreement with OEMs that were building their business in those days ¾ HCL, Wipro and others ¾ so that when customers bought a PC even back in 1990, they had a licensed copy of MSDOS to boot up with.

That was pre-liberalization too. What was it like doing business at that time?
Sanjay Mirchandani: I think it was no different from any other country where reforms were taking place. India was behind the cycle as far as reform was concerned compared to Brazil and some of the South East Asian countries. It was a difficult situation, but we knew that. We didn’t go in early with the expectations that things would grow overnight. We knew we were there for the long haul and we had to make the right investment decisions to stay the course, and that’s the way it worked out.

What were some of the early challenges?
Mirchandani: One of the biggest issues we faced, and this was a common theme in many countries, was to change the customer mindset to buy software. That was the hardest battle because people were just used to copying software and not paying for it. So when you made a value proposition for a customer it was a very hard sell because they wouldn’t understand it. For them if they bought a PC, it was an investment that they made and that was it.

There were some fiscal challenges as well. PC penetration was very low — maybe 30,000 PC shipments at the most in a year. The import tariff at that time was a 112 percent and so it was economically not viable for somebody to buy software. Also, in those days there was no free import of software, so you had to work with a company that had an export license.

Nair: The other thing was that once we had the channel set up and the products out there, we didn’t have the breadth and depth of technical skills and the manpower that exists today. We were building that from the ground up. So in situations where customers were deploying information technology, it was very hard to find people that were skilled in technology and could support the customer from end to end.

Microsoft has a very American management style. Did you take Microsoft and adapt it to the Indian environment?
Nair: Microsoft was a global company even in those days. Some of the practices in terms of distribution, channel skills, OEM development and so on were followed in the same way as everywhere else. It wasn’t as if we were isolated from the rest of the world. We made sure we hired local people to take care of local businesses. We have always maintained that local people understand local businesses best.

When you went in, did you plan to invest heavily? And how has it progressed from then?
Nair: There was no bar in terms of investment. Microsoft said that we would do what was needed to be pervasive in the marketplace. These kinds of offices need to be close to customers and that has been an ongoing philosophy. In fact, in India over the last five or six years, we have invested ahead of the curve, and forecast what demand would be like.

Mirchandani: As a company when it comes to headcount and things like that, we tend to be conservative. I think that’s a philosophy Rajiv and I have kind of grown up with in Microsoft. Investing for us, however, is not only in terms of people. We just put up a very large, state-of-the-art XML center in Bangalore, which was just opened by the chief minister. This was done essentially to bring Microsoft’s Indian partners and Indian customers to a facility that gives them world-class compatibility. They don’t have to fly all the way to the U.S. anymore. We put $4 million into that over five years and we don’t think that this is something that should be revenue-generating. It was built to make sure that our Indian ISPs and the Indian developer community have access to the latest facilities.

We put a whole bunch of people in recently to make sure that our Indian developer community has access to the latest technology and the visual studio courses. It’s almost a grassroots effort to ensure that they are ahead of the curve with preview and beta copies of the product. In terms of profitability of the India operations, we don’t really give out the numbers, but we have made sure that our investments over time yield the right returns.

Microsoft is a veritable giant. How does India fit into this picture?
Mirchandani: India has a big market with about 1.6 million PCs. More important than being a good-sized marketplace in certain ways is the fact that India is the hotbed of development today. We have world-class IT companies that are recognized globally. We need to make sure that as a software company, we are close to them. So it’s a very important marketplace, but it’s important for Microsoft because it has got a large developer base in the IT companies that are based here.

Nair: If you look around the globe and see what hot markets there are today, I think you can name Brazil, China, India and possibly Russia in the long term. But if you look at these countries, we possibly have the strongest sphere of influence as far as software development is concerned. It’s a big, growing market, and this is a thoroughly important proposition from Microsoft’s standpoint.

Various companies have gone to India with the aim of outsourcing. Few have really tapped into the market. What is Microsoft’s take on this?
Mirchandani: The strategy is evolving right now. Obviously, India in the last three or four years has really boomed and blossomed as a marketplace. Of course, we want to be part of India’s software and IT marketplace. There are groups within Microsoft that are and should be looking at India as a strategic resource.

How has India changed as a place to do business, especially in terms of bureaucracy, infrastructure and business environment?
Nair:The bureaucracy works much better than it used to previously. The government has clearly realized that if you want to be a global player in general, you have to do the right things in terms of reforms, and they have been doing that. They have made all the right moves in terms encouraging deregulation of the economy, bringing down the tariff barriers, putting strong IPR (Intellectual Property Rights) laws in place, deregulating telecom, and putting a very strong person (Pramod Mahajan) as the minister of information technology. So it is not that bad anymore. If you look at foreign direct investments, it was very difficult to get a license and set up shop in India in 1990. I don’t think that we’re in a situation today where bureaucracy is really a bottleneck. Infrastructure too has improved in leaps and bounds. It has to get better and it will.

You talked earlier about Microsoft India being run by Indians. As a subsidiary, how much do you communicate with Microsoft Corp. and how do you see that relationship evolving?
Mirchandani: I want to be very explicit in saying that we are Microsoft, whether we are in India, China or Singapore. We obviously have our local culture and we are an Indian entity working with Indian customers, so there are Indian characteristics to the business. But when it comes to strategy, when it comes to practices, we are Microsoft.

Most companies tend to take very short-term approaches to the marketplace ¾ like hire 2,000 people overnight, and then overnight scale down to 200. We grow very conservatively, and I think that’s the right way to grow. I can say with a lot of conviction that we continue to be very bullish about India.