'Satyam Will Contract and Become Much Smaller'

by Tabrez Khan    Feb 16, 2009

Phaneesh Murthy, CEO of iGate, in a telephonic interview with Tabrez Khan shared his views on a number of interesting issues including his latest disinterest in Satyam, effects of the recession and the impact of US President Obama’s policies on IT outsourcing.

What has been the impact of the recession/slowdown and how are you coping with it?

Typically, we see new application development projects at the start of the year. This year we have not seen that. Recession is likely to create volume reduction.

At iGATE, we are managing the slowdown by cutting a lot of costs. We have put in place a prudent cost management plan. Hiring now is based more on the Just-in-Time (JIT) principle than offering letters in advance. We have cut down discretionary travel. We have also reduced selling, general & administrative costs.

There’s a view that Indian IT companies are not tapping opportunities in the domestic market. What’s your response to it?

There are opportunities in multiple markets. One cannot just target a new market because there is a slowdown in other markets. Domestic market customers will require commitment from vendors and hence those who want to look at the domestic market will have to have that commitment to this market.

How do new concepts like virtualization and software as a service fit in with your product/service strategy?

What we are doing at iGATE is right in the heart of virtualization. What we are offering is business processes on demand and software as a service on demand. Our iTOPS (integrated technology and operations) model is based on pricing per transaction and is output based. Through our iTOPS model, we are looking at helping companies in their transformation into Virtual Enterprises, thus jointly creating a nimble organization that can dramatically reduce operating costs, meet changing customer needs faster and respond to competitive pressures more effectively. In these changing times, anything lowering investment finds favour with customers.

What is your view on the future of outsourcing?

I continue to believe that India will be the leader in Outsourcing market. India’s cost advantage is not vanishing anytime in the near future. All other countries will grow. But India still clearly represents cost advantage, superior project management and comfort for customers. As a result of these, India will be the leading outsourcing destination. The percentage of outsourcing could come down a bit from the near 100% that is there now as other countries will grow.

Why has your interest reduced in buying out Satyam?

I had said that I was interested in buying out parts of Satyam and was interested in certain specific portions of the company like ERP Practice, Manufacturing vertical as it would have given us the scale. But with the delay, the value is eroding, especially with customers and employees moving out. 

I expect Satyam to contract in size and become a smaller company.

There’s a view that since the new Satyam CEO is an insider, his image may be tainted and he may not enjoy the confidence of customers. What’s your view on it?

I do not know the person, so it may not be fair on my part to comment on it.

A Satyam buyout would have given you the scale to compete with the IT biggies. Now that you have ruled out buying Satyam, what are your options for growth through acquisitions?

We will continue to grow organically. Having said that, we continue to look for other acquisition opportunities, though there is nothing yet on the radar.

We are getting into Health care IT, which is expanding even in recessionary times. There is a lot of focus on Healthcare and I believe that health care transformation over the next few years will be done through IT. Budgets will go up in Healthcare IT.

What’s your view on the protectionist scare created by president Obama’s policy on outsourcing?

Yes, that is a valid fear. President Obama’s recent announcements conveyed that anyone who accesses the task money or bail-out package from the US administration will not be able to send work overseas. Almost all financial services companies will access this money. And that is not a good sign for outsourcing.