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Media Reports
Hit by the slowdown in business from Unisys, ex-alliance partner and its largest customer, Tata Infotech posted a 73 per cent decline in its bottomline. Nirmal Jain, managing director, Tata Infotech spoke to Gaurav Dua and Aman Chowhan about the rough phase and the corrective initiatives taken by the company. Q. What are the reasons for Tata Infotech’s poor performance of late? We were primarily focused on development work for Unisys, which also was the only international customer we had, prior to 1996. Even in India, we were primarily selling Unisys equipment. After Unisys sold its entire stake in the company to the Tatas, we had anticipated a gradual decline in business from Unisys as a percentage of total turnover. However, last year, due to the change in Unisys’ global strategy, revenues from Unisys suddenly dropped by 50 per cent. This huge and sudden drop of business in absolute terms came as a surprise to us and resulted in significant under utilization of the company’s trained human resources, which had been enhanced in anticipation of continued growth in business abroad. So, we had around 1,000 of our people sitting on the benches. This, combined with the high carrying cost of keeping people, was the major cause for the collapse in profits. Q. What percentage of total revenues is still contributed by business from Unisys? What are the initiatives taken by the company to shore up its top line and bottom line? Unisys still accounts for about 25 per cent of the total turnover as compared to almost 100 per cent in 1995. In the past four years, we have been restructuring and reorienting our business strategy with a focus on enhancing our customer base. In addition, we will be concentrating more on profitability rather than just revenue growth. It takes a long time to build up a large and sustainable customer base and now we earn 75 per cent of our revenues from customers besides Unisys. These past few years have been a time of transition and learning for us. It was pretty bad last year, but things are improving now. In accordance with our new strategy, we have also geared up our internal marketing team and are also focusing on business from North America and Europe. Our top clients now include a leading Internet company, a major bank in the US and other technology-based companies. We are also developing automated teller machines (ATM's) for the domestic and the overseas market. Q. Do you believe that the margins are attractive enough to venture into the ATM business, especially since other local players are moving out of it? And what kind of revenues do you expect from this business? Though margins are much lower in the ATM business, it still is a good business opportunity. Unlike other domestic companies, we have set up a manufacturing base in India. While most existing players have just been importing equipment from international manufacturers, their margins were much lower. We believe that most of the ATM's imported into India are refurbished, while we will be supplying brand-new ones. This will give us an edge over our competitors. In terms of estimated market size, we expect 4,000 to 5,000 ATM's to be installed in India over the next two years. To tap the overseas market, we have tied up with an international company with a strong marketing network across the world. We should be shipping our first overseas consignment by March. We will be supplying equipment on a cost plus basis and the international partner is also free to supply equipment at the price negotiated by it. Q. What was the rationale for entering a contract with Dell to provide after-sales support services to their customers in India, especially since most of the companies are moving out of the hardware business? We believe that after-sales support is also an important business. And the whole concept of exiting the hardware business to move up the value chain is not correct. In fact, we get most of our system integration projects in the country because we can provide quality after-sales support. Hardware forms an important part of the whole system and if customers don’t get proper hardware support, then they will not come back to you. Moreover, this is very essential for us, as our model is based on providing total systems integration. We are a complete solution provider and take care of both the hardware and software requirements of our customers. As for our agreement with Dell, we will be providing support to all their corporate customers in India. We will be appointing subcontractors who will be handling jobs that do not require our engineers’ expertise. This will also help us to establish relationships with a wide range of customers and thus get us more business. In India, the recognition and value attributed to after-sales support service is still low but this will change over time. Q. Does your strategy include developing products? If so, is this the right strategy for an Indian company to adopt to go for a product-based strategy rather than just focus on the services business? We have a separate product division consisting of about 100 professionals to focus on building products. It is very important to develop our own product. Building products can also help you work on the basic package to provide applications to the customers. More importantly, the services business today is thriving on the cost advantage that may be mitigated by competition from countries such as China and Russia. Then what would our USP be? So, to survive and grow in the long run, it is important to develop and build your own products. Q. Do you believe that domestic software companies have the required marketing skills and networks to sustain and grow on a product strategy in the long run? It’s time now for us, as an organisation, to build up the required marketing and distribution network. Only one or two out of 10 products can expect to be successful so you need to build this failure expectation into the business plan. But tomorrow, the competition in the services business will be fierce and then what would your intellectual property rights (IPR) or value assets be? Human capital can easily move out. So you just cannot base your entire strategy on human capital. In the next five years, we aim to get 40 per cent of our revenues from product-based business as compared to over five per cent today. We will be building products in new technology areas and not really focus on products for industry verticals. For example, we’re quite excited about a new product that will help convert legacy files into XML files automatically.
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