A steep climb

Bhaskar Pramanik is the chairman of Microsoft Corporation India Private Limited headquartered in New Delhi.

Deutsche Welle: Looking back upon nearly four decades of your association with the Indian IT industry, what would you say were the highlights in the story of India's IT-boom?

Bhaskar Pramanik: There were really three defining moments: the mid-70s, when IBM went out; and then the period from 1975 to 1990, when Indian local industry developed; The Y2K, which gave impetus to the software companies and then the post-liberalization period after the 90s when India became a global market from an IT-perspective, with both Indian companies, Indian multinationals as well as other multinationals all existing.

What are the problems facing the Indian IT industry at present?

Let's start off with the software and services for which India is known. Out of the 88-billion-dollar IT industry in India, 60-odd billion is really the exports and 28 billion is the local market. So let's talk about the export market. I think India very clearly has made a mark for itself in two areas: one is in the BPO (business processing outsourcing) industry, and the other is in the application, development and maintenance industry. And the third is the outsourcing industry. So Indian companies have started to really make a dent in various markets across the globe: US, western Europe and now increasingly in the Asia-Pacific region.

I think the model which was successful in the last 20 years focused on what I would consider a linear model, where basically software was developed on the basis of how many people you had. A lot of it was based on this concept of cost arbitrage. I think it's changed. I think a lot now is basically because of the efficiency of the process, the ability to have a mixture of off-shore and on-site. I think the companies have got a good grip on that. I think the companies have gone up in terms of the level of services, not just pure application, development and maintenance. It's sometimes complete outsourcing. It's sometimes a lot more in the area of consulting where they are giving value-based outcomes. So I think the industry has actually progressed over a period of time moving up the value chain and continues to do so.

The second, I think, is that the Indian IT industry is woefully weak from a product perspective. We really haven't created a company like Oracle or Microsoft or an SAP. Yes, there are pockets of success like Infosys with its Finacle banking application. There are a few other companies which have got ERP (enterprise resource planning) kind of packages. There is a very successful company called Tally which has got a financial accounting package which is primarily meant for small and medium business. But by and large the number of such successful companies in the product area has been limited. That's an area where the IT industry is really focusing to come up with the next generation of companies which are a lot more product-focused and which can then cater to a much bigger market on a global perspective.

How have the global financial crises impacted the Indian IT industry?

From an IT industry perspective, so far, from what I'm hearing from my colleagues, they are not seeing that much of an impact. In fact, whatever results have been published last quarter, whether Infosys or whether it is Cognizant or TCS (Tata Consultancy Services), I think the growth rates still continue to be good. Also, given the fact that the exchange rate has come down, that does give a comparative advantage from an export perspective. So as of now, the general feeling is that there is not going to be a major impact in terms of what NASCOM has earlier indicated in terms of the growth rate of software companies.

Viewed from the Asian perspective, where does India stand with regard to its competitors in the IT-sector?

Very clearly the IT industry is cognizant of the fact that it cannot continue to prosper or grow on the basis of pure cost arbitrage, because you'll always find some other countries or some other nations where the costs will be lower. So the focus therefore is moving up the value chain. So if you think about the Philippines, which now claims that it is the largest BPO, but that's basically a lot more from a call center perspective. Indian BPOs have actually moved where they are out doing a complete process outsourcing. So it's not just the simple call center kind of work. They are taking a complete process; sometimes they actually create the IT system, plus they actually will go out and take that whole process for something, for example, from invoicing to collection. And they take full responsibility and they actually charge on that basis.

So I think the Indian IT industry is getting a bit more sophisticated while some of the other nations like the Philippines are taking on some of the lower cost work. China is a different matter altogether. China has such a huge domestic market, and in a sense it is reasonably protected, that the Chinese companies have got a market sitting on their own doorstep…A lot of other work which is happening in China is focused towards Japan and the Asia-Pacific region and Korea, for example…And if you think of the multinationals like Microsoft, we have a huge R&D center. Again, I think a lot of the focus is around local language, localization, which is primarily because of the script and the language for Japan and Korea.

Interview: Arun Chowdhury
Editor: Sarah Berning