Thursday, November 6, 2008

Mr.Jeya Kumar, CEO of Mphasis - The Global financial crisis and its impact on the Indian IT industry

DoMS IIT Madras and CEO Connect invited Mr.Jeya Kumar, CEO of Mphasis for sharing his experience and future strategies of Indian IT in the face of present global financial turmoil and its impact on the IT industry. He was Sun Microsystem's first, and only, Asia Pacific employee to be promoted to be on their Executive Management Group in Sun Microsystem's 25-year history.

US Wall Street has crumbled and given away to the foolhardiness of “excessive consumption” and “greed” of the Americans. With the collapse of the US housing bubble, the investment bankers and merchant bankers were halted in their stride.

Mr.Jeya Kumar started off his talk by showing us the history of the credit undertakings of US and gave figures supporting the evidence about the credit crunch which is squeezing the economy. In a survey conducted in US among 100 fund managers, 56% of them felt there will be a depression in US. Also he highlighted the King’s report which talks about credit market debt as a percentage of GDP which is a staggering 350%, surely a worry for all the financial markets around the world including India which is heavily dependent on US economy.

“Recession is a part of the business cycle. Its foolish to assume that business will grow despite recession. Its the length and depth of recession that determines business growth.” is the view of Mr.Jeya Kumar. More than the cost arbitrage advantage that India enjoys, the main reason for the success of India is that it has the youngest workforce.

The Indian IT companies should look at value co-creation with the clients and sustained profitability. They are currently either problem solvers or strategic advisors. They should increasingly look at growth as process and learn from companies like GE which has a initiative called Eco-imagination. He talked about operational levers – parameters that can affect their revenues and which help to sustain excellence. Certain Indian IT companies use their foreign exchange based growth which essentially means they use hedging to bet their base rupee value against the dollar unlike the strategy employed by mPhasis which doesn’t go in for hedging.

Control your destiny or somebody else will – IT firms should try and find their core competence and why are they so successful. Leverage balance sheet instead of Profit&Loss statement. The future of IT is in SaaS (Software as a Service) model but yet the IT companies are still wary of its usage and have not actually accepted their cost advantages. It helps to save 80% labour costs and increases the marginal productivity of the P / E multiples of top IT firms is actually better then its global counterparts despite its devaluation in recent months.

The future trends of IT sector would be inorganic growth as a growth strategy rather than as a option. Industry will move towards consolidation and there will be a substantial gap in revenues of the Top 3 and the rest. Innovation and IP-led services will drive its profits. The future of Indian IT sector will entirely depend on the way it perceives its operations to be. The wider the outlook, the better the growth will be. Mr. JeyaKumar ended the session by quoting what the Indian IT companies should look at - “Going global, be global”.

Abhishek Mehra

Batch of 2010

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