Business Standard New Delhi
Friday, February 1, 2002
Hughes Software Systems (HSS), the Rs 210-crore software
subsidiary of the General Motors company Hughes Network Systems
(HNS), started its business with a clear focus on the telecom
technology niche in 1992. Now in recast mode - thanks to the
telecom sector meltdown - the company has decided to focus
on providing software services to telecom services providers
also in order to shore up its bottomlines. However, HSS president
and managing director, Arun Kumar, is upbeat about the company’s
prospects in the future. An IIT-Kanpur alumnus, Kumar, prior
to his Indian assignment, was head of HNS’s West Coast software
operations in the US. He is also the vice-chairman of Nasscom.
He spoke to Bipin Chandran and Anjan Mitra on HSS and issues
related to the IT sector. Experts:
TOP
Q: The domestic software sector has been facing
the heat of a global meltdown for over a year now. What does
your crystal Ball predict?
Ans. The industry is going through a rough patch,
no doubt, and the challenges are clear. The global slowdown
has resulted in a negative sentiment in the minds of customers.
This is reflected in the financial figures unveiled by most
Indian software companies.
But if you look at the growth numbers and projections of
industry associations like Nasscom, they are on the higher
side. This is because it comprises IT-enabled services companies
also in an area that is growing at over 70 per cent. In the
core IT services sector, however, the numbers are not so high.
The real challenges before the management’s of various companies
include ways to cope with the slowdown without wilting under
pressure.
TOP
Q: Do you think the IT industry should have
a common strategy to beat the slowdown? Or should individual
companies be allowed to chart their own courses?
Ans. If you look at the Indian software sector, there
are two types of services companies. The first are general-focus
companies with expertise in multiple industry verticals. Their
challenge is to expand their service offerings and compete
with global giants. In such cases, only the cost factor cannot
be an advantage: it has to be cost plus quality.
The second are companies like HSS - product-based companies
that are few in number. This is a business that is not well
understood in India because of its inherent volatility. The
market also does not understand this business well and approaches
such companies with a fixed mindset. Still, the challenges
for such players are to build large volumes and maybe have
a commodities type of business model. This will provide more
predictability to the business in contrast to the present
status when every quarter witnesses fluctuations. Microsoft
has implemented this model successfully.
Client concentration is also an issue that the companies
should try to build into their business plan as will lead
to the much-needed predictability. For example, we have some
business commitment from our parent company. Similarly Digital
(a Compaq subsidiary) is showing excellent growth because
of the business commitment from its parent company.
TOP
Q: How come you are talking about "commitment"
from the parent since of late, HSS has been talking about
reducing dependence on the parent?
Ans. Yes, we have talked about reducing dependence
on our parent company. This is because we are starting two
new business lines and have decided to offer services to other
players in the communications space and also to telecom service
providers.
If you look at the problems facing the Indian software sector,
you can make out that they are clearly associated with the
global tech slowdown. A few years back it was predicted, there
was a need to build a robust communications system where global
companies would spend huge amounts of money. Sensing big-time
demand, the suppliers also expanded accordingly.
Then the dotcom bubble burst and suppliers were left with
overcapacity. This put pressure on telecom equipment manufacturers
like Nortel, Lucent and Cisco. Many started revising their
projections downwards, and cutting their spends on IT services.
This, in turn, put pressure on the IT services companies.
In April last year, we estimated that companies will not cut
their spends on research and development at least. But a few
months down the line, that too started happening. In such
a scenario, a business commitment from the parent company
does provide stability to the whole business.
TOP
Q: If companies, including HSS, are to be believed,
most have added customers in excess of 15 in the last quarter.
Does this indicate a revival?
Ans. Customer acquisition has been encouraging in
the last quarter (ended December 31, 2001) versus the previous
quarter. But I am not ready to call this a trend and predict
revenue increase due to this. I would like to see the same
trend happening the next quarter also before making a strong
statement.
TOP
Q: Do you foresee software services companies getting
into the excess of 100 percent growth mode ever again?
Ans. Some companies may be able to report growth in
excess of 75 per cent in certain quarters. But considering
the present market conditions, it will be difficult to sustain
such a growth for long time.
TOP
Q: Coming to HSS, what is the immediate priority
of the company?
Ans. My immediate task will be to provide predictability
and stability to our business. This becomes more important
as HSS is a listed company. However, it does not mean that
HSS will be less aggressive. We will be very aggressive, but
cautious about our projections and business moves.
TOP
Q: Are the new clients that HSS has added offering
fresh projects or are they replacements for projects these
clients have cut in the US and Europe?
Ans. Every company is looking at optimizing its cost.
The US companies were first to catch on to this trend by replacing
workforce and outsourcing work to IndiAns. European
companies were slow to jump on to the bandwagon, as they had
to tackle issues like labor and social protection. Now they
are doing this and new jobs companies like HSS are getting
are a combination of replacements and fresh projects.
TOP
Q: Before announcing forays into newer areas,
HSS hired McKinsey and Co. Was the new business plan drafted
by McKinsey?
Ans. Plans for a foray into the telecom services provider
sector for example had started much earlier. As we went into
the planning stage, the momentum accelerated as we were being
surprised by the global slowdown. We had worked out a plan
to explain newer areas and McKinsey just ratified the whole
business plan. This was a very small exercise that lasted
for only two weeks.
TOP
Q: What is the potential of services provided
to the telecom services providers and what sort of revenues
is HSS expecting from this sector?
Ans. The potential is tremendous. I expect a significant
percentage of revenues to come from this service in about
three to four years from now. I will be in a position to talk
about absolute numbers only in April.
TOP
Q: What other areas in HSS looking at as part
of the "de-risking" exercise?
Ans. We are looking at entering other verticals and
the IT –enabled services sector. But as we have not yet taken
a final decision. I can only talk about it in detail later.
TOP
Q: There are talks about other countries emerging
as completion to India as the favored destination for outsourcing
jobs. How true is the threat?
Ans. Statistics have shown that out of total functions
of a company, about 40 percent of the work can be out-sourced.
India is projected to get a market share of about 8 percent
in this space. I think India is a clear leader since it has
a beginner’s advantage thanks to the quality of the people.
TOP
Q: How serious is the threat from China?
Ans. There are two aspects to it. In the international
market, I do not think China is a real threat to India because
of the (English) language factor. But the work that the Chinese
government has done in creating a domestic market is exemplary.
It is through these moves that China has emerged as a market
where IT players want to participate and be big players.
TOP
Q: How do you compare the Chinese government
initiatives with those taken by the Indian government?
Ans. Though our government has taken a lot of initiatives
where the IT industry is concerned, personally I feel, there
is no comparison between the Chinese and Indian governments.
For example, recently, the Chinese premier’s decision to give
in-principle approval to Infosys to set up operations in China
was taken on the spot. In my entire experience of doing business
in IndiAns. I have not seen anything similar. A move
like this creates a feel-good factor for the industry.
TOP
Q: Is HSS also looking at opening a software
development centre in China?
Ans. China is a great market for companies that are
operating in the networking and converged telecom networks
space. In this regard, it offers great potential to our customers.
What we are looking at in China is to offer complete solutions
along with our partners. But HSS is not looking at opening
a software development center in China.
Last updated : February 2, 2004
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