eFE INTERVIEW — Phiroz Vandrevala, Chairman, Nasscom

‘Size will matter in outsourcing game’

Phiroz Vandrevala

Phiroz Vandrevala steered Nasscom when it was going through its toughest time. The apex software industry association had just lost its president and the recession was looming large over the industry. Phiroz doubled up as an interim president and chairman of Nasscom successfully besides dispensing his responsibility as TCS executive vice president.
After months of slowdown, he claims to see a pipeline full of outsourcing projects in next few months. But he also warns about a shakeout in Indian software sector. He spoke with Ashu Kumar about his predictions and expectations in 2002. Excerpts:

Do you see any positive signs of an upturn in software sector in India?
Yes. There are clear sign of the business picking up in next few months. Looking at the pipeline, I see a good amount of out sourcing business coming to India.

What are your predictions for 2002?
Indian software industry will witness a spurt in software outsourcing business. The size of the projects would be much larger than the current project and would go up to 400-500 man years.

The global outsourcing and consulting companies like CSC, EDS, IBM Global, Cap Gemini would increase their Indian operations substantially. Global corporation, which have not yet started outsourcing, would come to India.

Do you see Indian software companies also bagging big global outsourcing projects?
Indian companies will ultimately get the benefit. Third party outsourcing companies will establish the credibility that large scale projects can be executed in India successfully. It will help Indian companies to pitch for similar projects.

However, the trend will benefit only the big and established companies as size and infrastructure would be required to execute large projects.

What will happen to the on site business? Will it shrink?
Not really. Every offshore project has 20-40 per cent on site component. So if the outsourced business would grow by 100 per cent, on site will also grow by at least 20 per cent.

You said only the big companies would get the benefit of outsourcing trend. Does this indicate a trouble for small and medium companies?
The small and medium companies should either have product or a customer or a niche to survive.

As the size of the deal is getting bigger, the mass of operations will become more important. There would be a possibility of two-three companies coming together to achieve the mass.

Will Indian companies be able to enter the global product market?
There are Indian software products in the global market and all major Indian companies are working toward developing global products.
Indian companies, however, would play in niche and domain specific segments rather than entering into mass desktop product market.

What is the future of IT enabled services business? Do you see all major software companies entering the business process outsourcing space?
IT enabled services will continue to grow at 60-70 per cent. Software companies would enter into BPO business because the customer base is going to be the same. However, they would keep BPO operations separate because of the difference in revenue and profit rates as well as required skills.