Friday, August 31, 2012

“We’re doing our best to understand India”

He works for a company that makes a billion simply by certifying other companies. Mark Loughead is the COO at Intertek, whose first-half revenue for 2010 rose by 4.9% to £652 million. B&E met Mark up to question him on the future of the certification business by Neha Saraiya

Although Intertek has been operating in India for over a decade across various domains including textiles, food, electrical products, auto sector and chemical industry, it’s only recently – post the global warming brouhaha and renewable energy focus – that manufacturers and even the government in India have realized the benefits of certification and the requirement of syncing their processes with global benchmarks. Intertek has surely done its noteworthy bit – for one, it fast tracked the air-conditioner energy labelling program in India. Development of bio fuel testing standards in the country is being led by Intertek too. B&E met up with Mark Loughead, global COO, Intertek, for an exclusive talk on India, the future of testing and of his firm’s business model:

B&E: Is India up to your standards in terms of certification?
Mark Loughead (ML): The current infrastructure of the country is by and large similar. The issue we face is [transportation and] re-transportation. Our customers want the product quickly after it is designed as in today’s world, time is money. Still, we are doing all possible things to get accustomed to the various conditions in India and to get all the skilled people required by us. Other than that, it is very cost effective to work here. Moreover, with India being touted as the offshoring capital of the world, this gives us an immense opportunity to expand.

B&E: How much importance do you pay to R&D at the corporate as well as at the country level?
ML: It’s extremely important. We always work according to some set standards to get into force. We conduct maximum R&D in our processes stream with an aim to get new technology to help our customers, as it is comparatively difficult to manage them during a business cycle. We take our experts into our research department and help them work independently as this gives us the benefit of a variable cost. We can then test many products and thus, we get high realization rates for our products. Thus, it’s a win-win situation for both. Moreover, when the business cycle gets changed, we get to know the needs of the customers and then we modify accordingly.

B&E: In areas like consumer electronics and automobiles, certification has now become kind of mandatory. But then, there are many industries where certification is not compulsory. How do you develop business in such a situation?
ML: Yes, in areas like consumer electronics and automobiles, certification now plays a pivotal role. But even if we just look at the testing part, only around 10% is compulsory as it is of standard quality and there is no requirement of inspection to be done outside the factories. Still, many companies follow it the other way, as mostly around 80-90% of the products still fall under the non mandatory category. It also translates to a huge untapped market size of almost £200 billion, which is large in itself.

B&E: Which are the basic areas where certification can be implemented?
ML: Traditionally, from the stage of R&D, products would generally be certified at their production stages only. But now, we are working with our customers in a much different way. Right from the product design stage till the delivery stage, we ensure that certification is followed at every required step. This largely stems from the fact that today, our engineers are able to see and monitor the products getting developed from the very early stages. We want to introduce certification from the very early stages not only to satisfy our customers in terms of quality and safety but also to add more value to our product offerings eventually.


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Thursday, August 30, 2012

“We often work without competition”

In an exclusive with virat bahri, Aricent CEO Sudip Nandy talks about how focus has been one of Aricent’s key strengths and how they will leverage it to enhance value proposition and growth prospects for the future
 It’s been over 4 years since Aricent was set up as a conglomeration of different entities post the acquisition of a majority stake by PE giants KKR and Sequoia Capital. The company has seen an impressive success rate, with revenues at $484 million in FY 2009-10 (from $238 million in FY 2005-06, a CAGR of 19.4%). The company’s business model has several unique hues to it; starting from the exclusive focus on telecom to the multiple client engagement model to the intense focus on design as well as R&D. In this exclusive with B&E, Aricent CEO Sudip Nandy discusses the company’s plans to grow in the telecom space and how the sector is expected to evolve further.

B&E: Tell us about how Aricent evolved as a pure play IT company in the telecom vertical. Do you feel it remains a compelling strategy?
Sudip Nandy (SN): Different parts of Aricent have got different ages, some of the parts are very old. For instance, the larger part of the building where we are sitting was one of the entities called Hughes Software Systems. These were independent companies in the 1980s and 90s. Hughes was listed on the BSE. In 2004, Flextronics acquired Hughes Software Systems in India and made it a part of Flextronics Software Systems in India. They continued buying a few more companies in India. In 2006, Flextronics became a part owner, and a significant investment was brought in by PE KKR and Seqouia Capital. At that point, we became Aricent. It just so happened that the larger entity called Hughes Software Systems and so many of the other entities that got acquired under it, were focussed in some way or the other on the communication eco system. There was a synergy in what was there together. The decision was taken that we should focus on the telecom and communications area since the feeling was that this is going to be a very very high growth area. Three years on, we find that was highly prescient in terms of where we are today. It is not only high growing; it is going to find its way into all parts of life and industries. It’s almost like internet in the mid-1990s. Communication in the next ten years is going to be embedded into everything. We think that with the focus we have, we are able to a) better predict what the future could bring b) invest ahead of the curve and c) when required beat out competition but often work without competition on our own work with clients. Over the last four to five years, we have been growing well and have been able to ride the crest and the trough.

B&E: You have had a long experience at Wipro. What motivated you to make the shift to Aricent?
SN: I have had a more broad experience in technology from 1989 onwards, with a little under 26 years in Wipro. And this is the first change; about an year and a half back I joined Aricent. And at Wipro, Aricent was our competition number 1! And when we talk about Aricent in comparison with other IT companies in India there are some unique aspects; besides the fact that we are sharply focussed. Companies are struggling and are at different levels of readiness in terms of the kind of consulting they have created. For us, around 20% of the revenue comes from situations which is really consulting; where the revenue per employee would be in the $300,000 per employee range; where in normal outsourcing and services business, it would be in the $50,000 per employee range. Second interesting thing is that the model that we have is what we call rightshoring. Around 82% of our people in US and Europe are actually local people. For other companies, the figure is around 20% and the rest are expatriates from India. We are more strategic for customers here whereas in my previous job, I would say we were probably more tactical for the customers. More positive was the sense of what is possible in Aricent. We had an innovation piece that was chugging along and doing very well; and then there was this engineering piece, and there was also a piece which was products and licences. All three had a significant communication component but it was not woven together. If you put the missing piece of strategy, it becomes a very compelling and complete story. Secondly I understood the business very well as we were competing with Aricent. The possibility of creating a new class of company was a motivating factor.

B&E: With respect to your co-creation strategy with clients, what are the different models of revenue you employ and how is it working out?
SN: We do co-creation because the work we are doing is very strategic. Often when services companies work with customers, it’s more of a play on the cost side, whereas our work is more to do with creating new and enhanced revenue streams. Most people go and talk to a CIO and get business, but with a CMO it is a very different discussion and value proposition. Even if it is not licensing of something we have created, we have different models – fixed price model, fixed price + sharing of rewards, capped royalties, et al. We haven’t made it a huge part of our business yet but it could over time become a huge part of our revenue. In situations like cost saving, clients want to share the risk and to keep you happy, they give a bit of a reward. With co-creation, they want to share the reward. We don’t own the IP in these cases; the customer owns it. We have not just people doing delivery work but also project management for the customer and defining their product road map. They have their eyes and ears on the ground to understand what competition is doing and how we can be a step ahead. Our people also work for customers on the strategy front. This is very different from a purely product engagement.


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Wednesday, August 29, 2012

“I rate the UPA government’s second tenure only a five on ten.”

Sudarshan Mazumdar, Former Director of Brand and Communications, Fortis and Escorts Group, speaks to Steven Philip Warner on why he considers the UPA II regime a half-success...

B&E: How would you rate the first and second tenure of the UPA government?
SM: Considering the overall performance since 2004, I rate the UPA government’s first tenure a 6.5 on 10 and its second tenure only a 5 on 10. The second season for UPA has been marred with failures. Be it the Budgets or the failed implementation (so far) of an issue like GST.

B&E: But aren’t you satisfied with UPA II’s foreign policies?
SM: We have tried to improve our relationships with China, Russia and others. But how beneficial it has been for India? Even today, we have not been able to strike any agreement with China, which still supports the nuclear programme in Pakistan. I think the biggest failure of the UPA has been that even after the Mumbai attacks of 2008, it did not succeed in creating a cohesive pressure on our neighbours to stop them from shipping terrorists. That is blatant. There has to be a coherent policy. You cannot have external parties representing you, which is precisely what has been happening. This has given Pakistan an undue advantage during inter-border talks. All this represents a failure of UPA II.

B&E: And what are your thoughts on inflation in basic food commodities?
SM: Even today, we still have to count on the weather gods to forecast how our economic growth will be. Currently, our agricultural growth is below expectations. Food grain production actually dropped this year by 12%. Then, there is poor food preservation. The lack of government supported logistics creates great wastage. Inflation is just the end result.


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Tuesday, August 28, 2012

Kat’s Game for more!

While the world swayed to Shakira’s Waka Waka at the South Africa World Cup, the organisers of the Commonwealth Games have roped in Katrina Kaif to work the magic for India. The actress, who turned 26 recently, is learning belly dancing for her performance on an anthem composed by AR Rehman. Already struggling with a hectic schedule, Katrina seems to have agreed to many more sleepless nights!


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Monday, August 27, 2012

Can they unravel this funds mystery?

Leave aside regulatory changes, the Indian mutual fund industry today faces a number of issues which are characterized by lack of investor awareness, low penetration levels, high dependence on corporate sector and spiraling cost of operations. Structural changes in business models are what AMCs now require if they want to sustain profitability by Mona Mehta

When viewed from over 25,000 feet above the ground, the pace of change in Indian asset management industry appears almost miniscule. Year after year, it seems, industry turn out the same old products with growth showing no superlative jump. But that’s only the bird’s eye view. Drill deeper, and a very different picture emerges – one in which a handful of mighty forces are spurring some dramatic changes, in an industry which is perhaps considered dormant till date.

In fact, apart from dramatic stock market performance, the year gone by was the year of reforms for mutual funds (MFs) in India. The key changes included elimination of entry and exit loads on purchase of schemes, the government allowing MFs to be traded on the bourses, et al. While some were in favour of investors, others pampered the industry. Whatever the situation may have been at the start of 2009, most investors definitely seemed relaxed and happy as the year ended. But the question stayed – how will the year 2010 unfold for this beleaguered industry which is still adjusting to the regulatory changes? Will the promise of growth sustain in the near future? Well, it is already halfway through 2010, and the questions still remain unanswered.

Despite clocking growth rates that are amongst the highest in the world, Indian MF industry continues to be a very small market comprising just 0.32% share of the global assets under management (AUM) of over $20 trillion. Though the ratio of AUM to India’s GDP has gradually increased from 6% in 2005 to 11% in 2009, it’s still significantly lower than the ratio in developed countries, where AUM accounts for 20-70% of the GDP. Even a recently released report by PricewaterhouseCoopers (Indian Mutual Fund Industry – Towards 2015) states that although the Indian mutual fund industry has weathered the financial crisis with AUMs posting a year-on-year growth of 47% in FY2009-10, retail participation has witnessed just a marginal increase to 26.6% from 21.3% posted during the previous corresponding period. In fact, the net sales of Equity and Balanced funds in FY2009-10 have been one of the lowest in recent years. Further, if statistics are something to go by, AUM as a percentage of GDP is still less than 5% in India as compared to 70% in the US, 61% in France and 37% in Brazil. This obviously means that low penetration level is a bottleneck in spurring industry growth.

What’s more? Since the crisis of October 2008, the domestic fund market has seen the steepest fall. As per a recent data from the Association of Mutual Funds in India (AMFI), the industry’s average AUM plunged 15.89%. While UTI MF saw the sharpest fall of 18%, ICICI MF too witnessed a decline of 15.86%. Experts say this was mainly owing to the overall liquidity crisis and outflows due to advance tax and 3G auction payments. Telecom companies sucked over Rs.1 trillion from the system.


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