April - 1999 - issue > Below the Radar

A great many Indian software companies these days — even the larger and more mature firms — are seriously contemplating re-engineering of their organizations to face an uncertain future. Investors, who have bid up software stocks to dizzying heights, have also begun to turn jittery.

Amidst all this upheaval, the Madras-based Future Software seems to be an island of calm. Since the start-up days of 1985, Future has focused on and built competence in one core area: communications software. It provides software products and services in current and emerging technology areas to the global communications industry.

Future’s customers include several global communications majors including AT&T, Controlware, DSC Communications, Hughes Network Systems (HNS), Integrated Telecom Technology, LG Group, NCR, Samsung Electronics and Thomson-CSF.

Future, which currently employs more than 250 engineers and is headed by a team of experienced professionals, has been growing at a rate of 60 to 70 percent over the past three years. In 1997-98, the company reported a turnover of Rs.195.5 million — up from Rs.108.8 million in the previous year.

Early Days

Future started out with a team of 16 employees, 14 of which were engineers. “Our vision was to create an international software company that will operate on global markets. We didn’t want to get into manpower services. we decided our focus would be technology,” says K. V. Ramani, Future’s Chairman and Managing Director.
Why did Future choose communications software as its technology? Ramani explains: “In the first five years, I could see the convergence between communications and computers happening. That was the time AT&T was trying to get into computers and IBM was trying to get into communications. We saw a vacuum in communications software internationally and the availability of talent in India. We decided to bridge the gap.”

From 1985 to 1990, Ramani, one of the founding members and previous president of Nasscom (National Association of Software and Services Companies), spent his time creating awareness in the US and international market about India’s potential as a software production base.

With Madras emerging as India’s mainframe capital and several large local and multinational firms using the city as an key Y2K processing base, Future was certainly tempted to join the bandwagon. The fact that Future’s revenues were not growing apace with the rest of the industry during the early nineties contributed to the lure. However, Ramani remained steadfast. But the company suffered a setback as it lost a significant number of its key professionals to other companies. Because the skills required for creating communications software are not taught at any academic institutions in the country, Future has had to invest significantly in recruiting and training fresh graduate engineers. But having gained the skills, these professionals become ideal targets for other firms including body-shopping outfits. “In fact, some companies were making a business out of catching hold of our engineers and sending them to the US. There were even cases of poachers lurking in our parking lot and inviting our engineers for a ‘chat’ at the neighborhood tea stall,” Ramani recalls ruefully.

Product Focus

Wiser and warier from their experience, Future decided to increase its emphasis on processes — including the one used for recruiting and training. The silver lining in the sudden loss of its manpower prompted the company to get into the products business at an early stage. Today, a solid 35 percent of Future’s revenues comes from products; projects bring in an additional 55 percent, and the remainder comes from services. Being an early entrant in the products arena meant that Future had to learn through trial and error. The company began by creating communications products aimed at end users and distributed them in the US through third-party distributors. However, these products did not fare well. The distributors, who were used to selling shrink-wrapped products, were not able to provide the require level of support for communications software. Another problem was trying to innovate in a field with the battle lines already drawn: “We were trying to take on a market where the competitors were well established,” he says.
Future has since then abandoned end-user products, focusing instead on middleware communications products that are marketed to OEMs. Today, the company develops, markets, licenses and supports a wide range of protocol source-code products that enable OEMs to bring their products to market quickly. “System builders are wary of technology changes, liking instead to wait and watch. We, on the other hand, are constantly watching emerging technologies and are prepared to invest in them,” says Ramani. “We create plug-and-play components that the system builders are glad to buy when they decide to build a product based on a new technology. Our products therefore give these customers a tremendous time-to-market advantages,” he adds.

Future’s products offerings cover ATM, WAN access, Internetworking, IBM SNA, telecom signalling and Internet technologies. It has developed software for about ten new communications products for customers like Controlware, HNS and Samsung. The payback to Future is in the form of royalty and license fees.

Future also undertakes joint product

development with MNCs. For instance, a software product developed by Future for a multiprotocol switch of a leading German telecom vendor sells more than 1,000 licenses per year. Future also runs dedicated facilities (DFs) for multinational communications companies that act as extensions of the customers’ software engineering facilities. It currently operates four DFs for companies based in the US, Europe and Asia.

According to Ramani, Future has been particularly successful in overcoming the resistance that large firms have to outsourcing core R&D work. “This is the most important difference between Future Software and other companies. While others do maintenance and porting work, we do core R&D work. Our customers are willing to send their core R&D work to Madras and involve us from the requirement planning stage to alpha and beta testing,” he says.

Global Expansion

Future’s US subsidiary, Future Communications Software, set up in 1995, helps market and support the company’s products and services in US and Europe. According to Ramani, Future would eventually become a US-based communications software firm with a R&D and production base in Madras. “For any successful product, development costs account for only 30 to 40 percent. The rest goes towards marketing for which you need significant investment. That will only happen if you are an American company,” says Ramani.
Future has already taken its first steps in this direction. In 1998, the company opened a new office in Dallas, Texas, in addition to its existing office in Silicon Valley. More significantly, Future has set up a small engineering center consisting of five to six professionals in the Bay Area to serve as its eyes and ears in the US marketplace.
“Customers outsource for three reasons: they need access to technology, they need time-to-market advantage, or they’re looking for cost advantage. If the customer wants either of the first two, the US center will provide a local solution. If the customer is looking for a cost advantage, it will be provided out of Madras,” says Ramani.

Funding

Future stands distinctly apart from the pack on the financials front as well. At a time when other companies of its size are queuing up with IPOs to tap the tremendous appetite for software stocks, Future has no plans of going public anytime soon. In fact, Ramani appears a trifle irritated when the topic is broached. “Some people [in the industry] seem to think that a stock market listing is their sole their purpose in life. For us, it is something that will happen along the way based on our financial needs,” he says. So far, the company has been funded through shareholder funds, internal accruals and terms loans from Indian financial institutions.

New Frontiers

Over the past two years, Future has begun to explore new areas outside of communications software, such as embedded systems software, factory automation and process control systems.
Future’s rapid growth in the late nineties have brought the company to a stage where it seems ready to join the big league, despite taking a completely different route than the rest of the industry. Now that the Indian software industry is preparing to face post Y2K blues, this maverick company from Madras will be worth watching out for in the new millennium.