Giving Slowdown a Soft Snub

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How
does Azim Premji, who once held the mantle of being the richest Indian in the
world, react to the much-talked about slowdown? The 56-year-old chairman of
Wipro is all abrasion and caution, “I love the downturn because it makes me
look at the fundamentals. And for the same simple reason, I would like to be
paranoid about it, even exaggerate it.”

Premji’s approach has ensured good returns for Wipro. The conglomerate grew
by 35% to garner Rs 3,092.2 crore in revenues for the year ended March 2001. But
that growth also takes into account its non-IT divisions. Wipro Technologies,
the group’s bellwether company, grew by a whopping 70%, far ahead of the
industry average. It accounted for 57% of the group’s revenues.

“Growth ahead of the industry average” is all that Premji promises
while projecting the company’s performance in fiscal 2001-02. The policy
regulations of the US market–Wipro being NYSE-listed–don’t permit him to
give a specific figure. And of course, the monster of the slowdown certainly
dances at the back of one’s mind.

Foresight Japan

Robust and Staying ahead

  • Wipro announced its results for 
    the year ended March 31, posting sales worth Rs 3,092 crore
    n As a conglomerate, its revenues registered a 35% growth 
  • Wipro Technologies continued to remain the bellwether, growing by 70% and contributing 57% to the 
    top line
  • Wipro Infotech, despite growing 
    at a mere 3%, managed to make a contribution of 27% 
  • Telecom & Internet Service Providers, Wipro’s latest vertical, contributed 3%
  • Chairman Azim Premji says the company will grow ahead of the industry average, which Nasscom predicts will be 40-45%

Focus APAC and Europe

  • Wipro is increasing its focus on Japan, which accounted for 7% of its software exports in 2000-01
    n The company is looking for 
    100% growth in the current fiscal
  • Europe is also high on the company’s agenda
  • The first European development center in the UK went online last year
  • Marketing offices in important European cities have been set up. Many others are in the pipeline.

Wipro established an early presence in Japan, and was quick to see the
potential hurdles–language being a key one. Worse, the staff was wholly
ignorant of the native culture and etiquette. As an Indian company, Wipro was
ill-equipped to deal with the Japanese client–the ‘comfort factor’ was
badly amiss. It invested to remove those barriers. “Today, we have 140
engineers who speak the language; and 100 who read and write it as well,”
says Premji.

The move has started paying off. Currently, Wipro has 100 professionals doing
on-site development in Japan and another 900 working at offshore centers for
Japanese clients. The company operates there through its subsidiary, Japan KK,
established in 1998. Japan accounted for 7% of the company’s overall software
exports in 2000-01, and hopes have been set high for the region in the ensuing
fiscal–the target is 100%, minimum.

Apart from the language-and-culture edge that the company boasts of, what
will yield such a high growth rate in Japan? “We have a tradition of strong
quality processes, which are fundamental to working with the Japanese. Some of
our leading customers in Japan are Daiwa, Mitsubishi, Epson, NEC, Fujitsu, and
Sony.”

The company is following a strategy of being geographically diversified in
terms of revenues. “Europe and Japan contributed 35% of our revenue for the
year 2000-01. We expect strong growth in these markets based on the lower base
and our past experience of growth in these regions,” says Premji.

Isn’t China a threat?

Interestingly, Premji doesn’t think so. Forget being a threat, if one were
to go by his gut feel, they’re not even competition, though the Philippines
and Malaysia are! Premji is not brushing the Dragon aside–he’s prudent
enough not to do that. But then, the Chinese have a lot of catching up to do, he
feels. They fare miserably on the English language front, and the blockade is
bigger than it appears.

“They have other disadvantages as well,” he says. One, they are
still low on the value chain, especially when it comes to software development.
But aren’t they pretty good at springing surprises? And then there are reports
that the Chinese government will be setting up over a 100 IIT-caliber
institutions. A few years down the line, they could suddenly be churning out
thousands of software engineers, ready to take up global development projects at
significantly lower rates. Mass training in the English language has already
been initiated, and a state-controlled mechanism would ensure that results start
showing up soon.

“They are a highly structured and disciplined lot” is all that
Premji will agree to, but that doesn’t budge him from his earlier stand. The
media-shy IT Czar is forthright on this aspect. “Coming up to notch,
including on the language front, will take time. It took us 20 long years to
reach present levels. I don’t see a reason to worry about China in the near
future.”

One thing is for sure: Wipro is not likely to be caught unawares when the
Dragon turns its glare at the software export space. The strategy–well that’s
not something one would expect Premji to chat about. Is he toying with the idea
of setting up an operation in China, akin to that in Japan? “No, there’s
no need for that. India still offers the best price-quality-technology
advantage. And this won’t change soon,” he says.

Let’s talk India

For
now, Wipro is focusing on India, so far as setting up development facilities is
concerned. The company’s guiding principle here–go where the horsepower is–remains
manpower, manpower, manpower.

So most of the company’s offshore centers are located in India–five of
them to be precise. A sixth will be coming up in Kolkata, with Wipro entering
into an MoU to that effect with the West Bengal government. Wipro has bought 12
acres of land in Kolkata, 50 acres of land in Hyderabad, and announced that a
development center in Mumbai will become operation in phases, starting next
quarter.

So where’s the logic in setting up new development centers in the aftermath
of the US slowdown? Is the answer that Wipro isn’t apprehensive of the
slowdown touching Indian companies? "Indian companies are going to be
benefited by the slowdown because more projects will be outsourced from the
US," says Premji. Does that imply that Indian companies are not feeling the
pinch at all? "Customers are taking longer to take decisions," he
concedes. But then, "the cake remains big, despite the slowdown".

What does the future hold?

Nobody knows, and Premji doesn’t pretend to either. His vision is to make
Wipro a $5-bn organization by 2005, but that’s not a target; he makes it amply
clear.

What of the vision…are Indian companies flexible enough to work their way
around slowdown-like situations? "The process of adjusting to the economic
downturn is slower for an IT services company because the area is more
complex," says Premji.

And how good is Wipro at quickly finding alternative means for growth, when a
given situation or client threatens to bring a sudden drop in its revenues?
Fairly smart, one would admit, going by the General Electric instance. GE is the
company on which Wipro once depended on for 18% of its revenues. The world’s
most respected company, GE is also known for its aggressive bargaining stands.
When it demanded rates that wouldn’t suit Wipro, the latter decided to call it
a day for several projects. Today, GE accounts for just 3% of Wipro’s
revenues, and yet that has not affected the company’s march. Was that about
crisis forecast and management?

Last fiscal, Wipro added another vertical to its global IT business–Telecom
& Internet Service Providers–to provide IT services and solutions to
network-based service providers. The entity contributed 3% to the revenues
during the last quarter.

Wipro Technologies, headed by Vivek Paul, and Wipro Infotech, led by Suresh
Vaswani, continue to be the group’s flagships. Paul continues to operate from
Santa Clara in the US, and his stand on targeting markets other than the US are
well known. "The company will be aggressively making its presence felt and
marketing its services in Europe and Japan," he is reported to have said.

Vaswani is optimistic about Wipro Infotech’s growth. "Domestic market
is showing an increase in operating margins," he says. And where is the
competition going to come from? "Essentially, it will be companies like IBM
that we are watching out for."

Deepak Kumar in New Delhi

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