Business India, February 16-29, 2004
Coming of age
Nasscom, the apex body of Indian software and services companies, has overcome setbacks and reinvented itself to thrive in adversity.
Kiran Karnik is the most unlikely face of the year. Thoughtful, self deprecating, cultured, always giving credit to others, no self promotion ... these are the many epithets that come to mind on meeting him.
When he took over the stewardship of Nasscom (National Association of Software and Services Companies) in September 2001, a comparison between him and his predecessor - Dewang Mehta, was inevitable. Mehta had died tragically in harness at 39, in a hotel in Australia. Dewang was a dynamo of manic energy that made him the premier IT evangelist of India and the face of the entire Indian IT industry. Many wondered if Karnik could fit into Mehta's big shoes. In short, if Mehta was the irrepressible Elvis Presley of Indian IT (including the side burns and hair do) then Kiran Karnik is the tambourine man - Bob Dylan.
"My answer to such posers was, 'look at it differently, I am standing on a very tall man's shoulders’”, says Karnik, in his typically modest style. Today as Karnik gets featured as the Face of the Year, 2003 by Forbes.com, one can objectively say that Karnik and Nasscom have finally moved out of Mehta's shadows in more ways than one.
Quietly Karnik and a host of IT stalwarts - Phiroz Vandrevala, Harish Mehta, Saurabh Srivastava, Arun Kumar and others - helped reengineer Nasscom. It is no longer centred around personalities and individuals but is becoming an institution. It is not just plain old lobbying based on contacts and charm, which Mehta excelled in, but research-based policy interventions; it is not any more a one man army of Mehta working 20 hour days, but a whole host of IT entrepreneurs and executives, giving their time willingly for India's most successful industry association.
Business India recognised Nasscom's contribution to the business landscape in India long ago in a cover story in February 2001, 'Power lobbying'. We said then, "Nasscom has functioned more than just a trade body. To be sure, it has advocated the cause of its members, but at the same time it has looked well beyond this and it has advocated changes in the national interest. In fact, Nasscom has morphed from a mere trade association to a catalyst for change on the national scale."
Three years later we can safely say that despite catastrophic events, like the loss of Mehta, a recession in the US and 11 September, Nasscom has come out trumps. Advanced countries with high cost economies are outsourcing services to countries like India. Today outsourcing has become a big buzzword. India is the first destination for many western companies and when they land up here the first address they visit is that of Nasscom. No wonder Forbes.com chose Karnik. "I am no celebrity, they took bits and pieces of what is happening the world over and what Nasscom is doing, and when they put it all together the face that appeared was mine," reacts Karnik.
Nasscom's annual conference showed clearly the coming of age of Nasscom and the Indian IT industry. Why do we say that? There are many small changes, some tangible and some intangible, which all add up to a new phase of Nasscom.
Earlier Nasscom brought in celebrities, Indian and foreign, to draw media and delegates. This year, celebrities in the opening session were the billion dollar club of IT companies, made in India. The panel consisted of S. Ramadorai, CEO, TCS; Nandan Nilekani, CEO, Infosys; Ramalinga Raju, chairman, Satyam; and Vivek Paul, CEO, Wipro Technologies (through a video conferencing link from California). They were not great orators, there was no grand standing, they were not a Steve Jobs, a Scott McNealy or a Larry Ellison, but there was tremendous self assurance. They impressed Suhas Patil, the grand old man of Silicon Valley. "We have come of age," he said, later.
In fact, more Indian tech gurus from the Silicon Valley, are rescinding their earlier views and admitting that Indian offshore development is a new model and it has worked. Earlier many of them used to look down upon the Indian IT sector as mere 'labour arbitrage' - a fancy word for middlemen between Fortune 500 clients, and poorly paid but highly qualified Indian programmers.
But Indian IT companies were quietly confident that they are their own models. "From the beginning that has been the case. We could not learn even from services companies like IBM or EDS. They had different cost structures and delivery models. We could not benchmark against them. So we had to go into a huddle, brainstorm, share our data and woes, pass tips to the next guy who is entering a new market, etc, and the forum that we created for that was Nasscom," says Saurabh Srivastava, chairman, Xansa, and one of the founders of Nasscom.
"It is a great place where CEOs and entrepreneurs do really share data, and their worries without any inhibitions," says Revathi Kasturi, president, Tarang Software Technologies, a Bangalore-based startup, the first woman to become an executive council member.
And that tells us something about the internal working of Nasscoml and what makes it different from other industry lobbies. While other industry associations get activated come budget time and are riven with factionalism and contrarian pulls, Nasscom has survived and thrived. Of course, some might say it is narrowly focused into software and hence the cohesion, but that is only a part of the story. After all, it consists of 800 members, only five of who contribute to 35 per cent of the industry turnover. It consists of MNCS, it consists of services companies and product companies, it consists of third party BPOs (Business Process Outsourcing companies) and captive BPOs of MNCs. SO there is enough scope for all kind of push and pull. But Nasscom continues to draw them together.
The biggies of software like TCS, Infosys, Wipro, HCL, Satyam, Cognizant and so on have long out grown their start up phases, have enough financial muscle to invest in marketing, research, overseas offices, etc, so commonsense says that they do not need the hand-holding of Nasscom. But out of 30-odd executive council members, at least 20 attend all meetings. As for the annual conference, everybody keeps it on the top of their agenda of them give a lot of their valuable time for the affairs of Nasscom. Why?
"Nasscom has a voice that carries more weight than any of the individual companies so we make the best of it. Moreover, it is a forum where we grow out of our narrow companywide concerns and brainstorm about what is good for the whole country and the entire IT industry," says Phiroz Vandrevala, executive V.P, TCS, who became a full-time spokesman for Nasscom in the post-Dewang period, before Karnik took over.
But what the industry needed in terms of tax benefits for software exports, and lower telecom tariffs that are crucial to deliver software to clients all over the world was won long ago by the diligent work Dewang Mehta and others, so what kind of policy intervention are they talking about?
Well there are always issues which affect the IT industry, where the knee-jerk reaction is usually the wrong one. For example, when everyone wanted duty protection from imports, Nasscom asked the government for zero duty on imports. When IPR had scant value in India, Nasscom carried out campaigns against software piracy, despite the fact that it could only benefit MNCS like Microsoft and not Indian services companies. Recently, when the government made noises about taxing the foreign BPO companies, Nasscom as a body advised against it, even though Indian BPO companies would have 'benefited' from it.
Why? Well let us look at the big picture. The zero duty on imported software helped in reducing the cost of IT in the domestic sector. Even though the bulk of Nasscom members depend on exports for their bread and butter, it has been their firm belief that without a large domestic base no product companies can come up here. "Moreover as Indians, all of us would like to see an IT-enabled knowledge based economy grow in India and not just in the rest of the world. We may not use fancy words like 'nation building', but we are after all proud to be Indians and want it to shine," says Harish Mehta, chairman, Onward Novell group and another founding member.
Similarly, copyright and IPR issues taken up by Nasscom have helped in the growth of product companies in India and have endeared Nasscom to MNCs as well. This is already paying off. Product companies contribute over Rs.6,600 crore to software exports, and are growing at a rapid clip of no less than 30 per cent per annum, according to Rajiv Mody of Sasken Communications, who heads the Nasscom Product Forum. The product forum is also promoting the 'India Inside' campaign, showcasing MNCS which are doing high-end research and development in India.
As a result, Microsoft, SUN, BT, Intel, Siemens and Price Waterhouse Coopers are very active participants of Nasscom. "We are deeply interested in promoting IT in the domestic sector. The benefits of e-governance, as a tool of transparency and using IT as a productivity tool in manufacturing and financial services are going to take India forward as a major economy and they transcend our narrow company interests," says Rajiv Kaul, MD, Microsoft India, who heads Nasscom, domestic IT market forum.
But why did Nasscom advise the government against taxing foreign captive BPOs? They are doing value added work here but are not showing it as a profitable business. As a result, not only is the government losing taxes but if an Indian company like TCS does it in the US then the US government's Internal Revenue Service would promptly put them in jail!
"Many times reciprocity is not the right response. If the circular issued by CBDT had gone through, then we would have got low-end work, which is not taxable and high-end work could have gone to other destinations. Our estimations are that by 2006-7 this industry might grow to about $70 billion. We know that 40 per cent of that will go as salaries. That means the government will get about $10 billion as taxes, which it would not get otherwise. So why do you want to kill the golden goose for a few dollars today?" asks Srivastava.
Business India spoke to several Nasscom executive members and all of them echoed the same sentiment independently. This shows several things. Firstly, Nasscom members are thinking their policy positions through, which are widely debated internally and backed up by hard data, leading to a united stand. Secondly, lobbying is now based on hard statistical data and not personal charm. Thirdly, they are rising above their immediate interests and looking at what is good for the country in the long term.
"If we had stayed in the same mould as we have been, then Nasscom would soon become irrelevant. I divide the growth of Nasscom into three phases, in the first phase it needed evangelizing and Mehta did it brilliantly. The second phase was putting in place the right policies and regulations, and that was hard work: telecom liberalization, 10A/10B in the Income Tax Act, Software Technology Parks, a host of things which helped the industry. The third, which started just before Dewang passed away, was brand building,” says Karnik.
“So far we have done well, but to maintain a 28-30per cent growth we need to be innovative. It cannot be incremental growth. We are promoting start ups, innovation and incubation, and continuing to influence policy, based on solid research, on hard data. For example, about lowering duty on computers and its effect on the PC market, we looked at prices and demand in different countries. But since people say India is different we looked at price elasticity in mobile phones and the CTV market, and what employment multipliers they can be and what they can do to the rest of the Indian industry including the software industry."
"Today, against the backlash to outsourcing jobs to India too, we are going to policy makers in the UK and the US, with hard research data from the Department of Labour, US, etc. We talk of gains to their domestic industry through outsourcing, we look at the demographics and the aging population profile there and the resultant drop in GDP growth, problems with immigration, etc, and hence project outsourcing as the best way out. This is a more professional and sustainable approach," explains Karnik.
Besides e-governance, Karnik himself is very excited about IT in defence, which is not talked about much. Today IT is the primary weapon in defence. One can use IT in blocking, tracking, tracing and directing armament fire, etc. But it is all packaged with the hardware. If the hardware and software are disaggregated then the cost of the system will come down heavily in India's favour and Indian companies can be involved in doing the software. It will save money and make India more secure.
Nasscom, however, is also working behind the scenes on WTO negotiations. If India works out its strategy properly, then there is a great opportunity for the Indian services sector. "There are some genuine problems for CAS, etc, but let us look at the total picture. We put together a high powered task force and got people from four top companies to come and work full time on this, and put together a document on the services opportunity and how it can grow to 10 times our other exports in six to seven years, if we can get the foreign markets opened up," says Karnik.
"There are two reactions to globalisation. Either there are people who are ideologically for globalisation or old socialists like me, who are sceptics, who say for 10 years nothing has happened so it is bad per se. But today we can see that unlike other developing countries we have a great opportunity. We should open up earlier. Tactically you can have different stances.
You can hold back retailing, till they open up something else, etc, that is a different issue," says an excited Karnik.
Karnik has drawn on the collective wisdom of his members. Ganesh Natarajan, Rajendra Pawar, Rajiv Kaul, Rajiv Mody, Ramalinga Raju, Arun Seth, Bhaskar Pramanik have been drawn in to head specific activity.
What about the 80 per cent of small companies, who might not connect with the concerns of the biggies? "'Within Nasscom there are enough activities which help the SME or startup sector in terms of research, advice on marketing or IPR, etc. I have never felt any kind of discrimination of smaller companies. In fact, even if somebody makes a remark inadvertently, I don't let it get me down after all I represent 80 per cent of the membership," says Revathi Kasturi.
Nasscom is being studied by several countries since there is no other similar example in the world. "National Rifle Association in the US is probably the only other," laughs Harish Mehta. But jokes aside, the diligent Chinese are sending a delegation every month and closely monitoring Nasscom's activities to learn from it. "There is a saying that if you carry a big stick then you can talk softly and others will listen carefully. Dewang gave us a big stick so I can afford to talk softly," acknowledges Karnik.
Looking ahead there will be non-tariff barriers, not just due to job losses but because India has emerged as a major player. Other countries want to know whether they are too dependent on Indian software. "How do we sustain our competitive advantage, after all we have cleared the path for our competitors? China in the long run because of size and bandwidth will be our competitors. They will be offering everything from call centres to R&D. But ultimately our biggest differentiator will be diversity. We are used to working in multicultural teams, being ourselves a multicultural society. So it is easy for us to work in international teams."
"At a more basic level our culture is that of ambiguity. Recognising gray areas helps us think creatively. When things are given step by step as in manufacturing, the East Asians are great. When you look at us five to 10 years ahead, you will see us as great source of ideas and solutions," says Karnik.
Where do we go from here? In Karnik's words, "When I took over, a journalist asked me to summarise in one sentence what I want to do! I thought hard over it and said, 'I want to make India and IT synonymous'. When you think of wines you think of France or with watches you think of Switzerland. Of course, everybody makes wines, California, Australia, Chile and even India. Similarly everybody makes watches, but France and Switzerland stand out in our minds. In the US, associating India with IT, has already happened. That is what is seen in the backlash in a negative way. But my hope is that when this blows over, association of India with IT will remain. "We say Amen to that.