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Home » Wipro Chairman Says Failure Is Essential Part of Process (Transcript)

Wipro Chairman Says Failure Is Essential Part of Process (Transcript)

Full text of Wipro Chairman Azim Premji talks at Stanford. This event took place on October 27, 2006.

TRANSCRIPT: 

Azim Premji – Chairman, Wipro

Thank you for having me over professors and students. I am an alumni of the Stanford engineering school but I must warn you that I never was a very good engineer.

I came here for engineering because at the time when I came here the Government of India only gave exchange for an engineering education for undergraduate. But what I enjoyed most about my engineering education, I was telling Dean Ross about this, is the broadening opportunity one got as an engineer which opportunity is not available in India. We tend to get funneled into engineering from your one unlike most engineering schools in the United States.

I had to leave Stanford in ‘66 because my father suddenly died and had to take over some family responsibilities of the company. We were a small company then. Today our run rate — in a rapidly growing company I think run rate becomes more relevant than the sales of the previous year — is over $3 billion. And we’re growing in excess of 34%, 35% a year.

Our market — we are listed on the Indian stock exchanges and we are also listed on the New York Stock Exchange, and the market capitalization of our company is little over $20 billion, which really puts us in the league in terms of software consultancy of the Accenture’s plus in terms of at least market capitalization if not in terms of revenue size.

Since the our entry into information technology in 1981, we have grown in revenue but we have also grown in headcount. The total number of people which we have in our information technology business today globally and in India are in excess of 60,000 people. And the interesting statistics is that they drink 1400 gallons of coffee a day and they drink over 3,300 gallons of tea a day, roughly equal in terms of size.

How we were able to do what we did?

And you know I don’t think we are unique in this. There are other companies in India who have repeated this and we’re finding now that many other companies in India have built up a scale of ambition which is completely different than the scale of ambition which the head two years back. We’ve seen this happening in pharmaceuticals. We’ve seen this happening on a more smaller base in biotechnologies. We’ve seen this happening in auto ancillaries. And recently with a very large acquisition, we’ve seen it happen in steel, very interestingly in the Quantum acquisition which a company in India did.

And I think this firing of ambition in terms of the globalization of Indian companies has in part been generated by the success of the software and the IT enabled services industry. And I figured we set the example and our fellow businessmen figured that if these fools in software can do it, so can we — which is really the quantum change and it’s a very pleasant quantum change in the scale of ambition of Indian business leaders, particularly over the past two years.

How do these changes happen? In every market at every juncture, incumbent companies dominate almost every industry. Established customer relationships, well-entrenched products, powerful brands, and significant scale advantages make these companies a pure invincible to aspiring entrants. Yet time and time again and particularly you see this in United States and particularly you see it in Silicon Valley, upstarts create a disruption in the marketplace, a very strong disruption in the marketplace, innovating on delivery, innovating on process, innovating on technology, innovating on products and very very often, innovating on business models which I think is becoming the most important determinant of success in the marketplace.

And they change the rules of the game and because they’ve changed the rules of the game, they have equality of a competitive space.

For consumers, innovation means higher quality and better value for goods, more efficient services, both private and public and higher standards of living.

For businessmen, innovation means sustained improved growth, higher profits. And in a interconnected world, innovation improves lives. Here are some examples, very interesting simple examples.

Poor fishermen in Kerala which is the southernmost tip of India use cell phones now on the way back from their catch, so that they can find out where they can get the highest prices and head straight for that part of the market, straight from the sea.

We’re finding farmers now subscribing to cell phones and they do that in India in the small villages because typically farmers in small villages used to sell their produce in the local market which is called mandi – MANDI. They very often found that the mandi wholesalers used to exploit them on rates. Today the farmer before he brings his produce to the mandi would check out what are the rates in competing markets from a relation or a friend in the competing markets and then decide whether he wants to sell the produce, what is the cut-off at what he wants to sell the produce or take his bullock cart to a mandi which is a little further away because he’s able to get rate realization which is better.

The more enterprising of them will go to the extent of also trying to follow the closing rate on the Chicago Board of Trade the previous day to see whether any trends are building up and whether he can expect better rates going forward and it’s what sitting on his produce.

In Bangladesh, Grameenphone which started with microfinance and now it’s extended its reach, enabled mobile phone connectivity to over 40,000 villages. Mobile, public phones are managed by village phone women who run it as a business. These micro entrepreneurs buy the phone with a loan from the Grameen Bank and then sell the use of the phone on a per-use basis or on a per call basis, because people cannot afford to buy the unit value of the phone.

The initiative of [each Opal] by a leading agricultural produce company which incidentally happens to have built his fortune in selling cigarettes links directly with rural farmers for the procurement of agricultural produce and agricultural outputs like soya, like coffee, like prawns plus food grains, transactions worth $100 million were carried through these [sarpas] in the first year and this company is rapidly scaling this up.

What really is innovation? How is it different from creativity?

The simplest definition I have come across is that creativity is about making new things. Whereas innovation is about doing new things.

Innovation comes from applying creativity or applying thought. It is about action versus just ideas. It is about implementing as much as it is about design.

Similarly innovation needs not be restricted to products or to technology. To me, innovation applies to productivity; innovation applies to service. It applies to service models which India is becoming a pioneer on. It applies to financial disciplines. It applies to employees attitudes and renewals. It applies to business models most importantly.

Wipro is an example of business model innovation. We pioneered ways to deliver services like research and development, testing infrastructure management and application development and maintenance remotely.

Today, as a company, we are the largest third-party R&D service provider in the world to multinational R&D companies. We have more than 16,000 engineers in this area.

The digitization of the world along with globalization with India, China, and Russia deciding to enter the global economy has meant that the emerging markets in this digital world are becoming caldrums for innovation both in terms of product design and in terms of business processes required to deliver these products to the market.

So how does a leader create a culture of innovation?

I can share some thoughts with you based on our experience and based on some of my personal experiences.

Innovation is just not about incremental improvements in the course of daily operations, or one of new brilliant ideas. Innovation is a culture that needs to be created consciously and pursued assiduously by the organization and always, always nurtured and that’s probably the most difficult thing to do as one gets larger and as one gets more bureaucratic.

First, we need to appreciate that all success create its own gravity and please do not under-estimate this. It is easy to believe that what has succeeded so far must continue to succeed in the future as well. This builds up a kind of dominant logic that is comfortable to the thinking of the management. Any new idea will be pulled to the ground with the force of gravity.

The first step therefore is to confront the gravity, if we can inspire everyone around us with the mission that is truly exciting, the feeling of complacency gets whittled and tends to come off. This can provide the escape velocity to counter the gravitational forces. It can also create new energy to dig out and give life to many ideas lying beneath layers of bureaucracy.

Second, ideas can come from everywhere and from anywhere. Even the finance team, no insultment but I just find, you know, all organizations, a huge amount of jokes are built around the finance team; I don’t know why. But it always seem to be the case in every organization.

The customer is a great source for ideas. The customer can actually participate. It is getting better satisfaction provided we can listen to the customer and what he or she has to say. I think this is the most important thing in terms of customer visits, in terms of customer research is how do you get the customer to say things or indicate things will give nuances of things which are really unsaid, and very often the customer himself or herself does not know about it. But that is the source of truly very very interesting ideas.

Third, we need to actively bring in people who are not clones of people already in the organization. And that means a very very concerted focus in terms of funds resourcing or recruiting teams. Because typically all of us recruit what we are most comfortable with. All of us try to reject what we are not comfortable with, and if one wants to generate innovation in an organization, it is absolutely essential that one gets diversity. Diversity in terms of cultures, diversity in terms of age, diversities in terms of sex and diversities in terms of the way a person thinks and acts. Very often this diversity is rejected by most organization and particularly organizations would scale rapidly because for them the process of recruitment becomes a very uniform standardized process of headcount additions.

But in addition to selecting the right people and getting them on stream, I think it is very critical that these people are protected. If these people are not protected in an organization by leadership, by supervisors, by management and by top management, they tend to wither away and leave the organization. And generally the effect of this is much worse off than what would have happened if you’ve not selected them in the first place, because that then becomes the image of the organization that the organization cannot absorb diversity. But such people are invaluable to the innovation process.

Fourth, top management needs to demonstrate its commitment to innovation, consistently and always. People hear what others say but act on what others do. The commitment must be intrinsic and go beyond just providing budgets and physical assets. We need to constantly reinforce the field that we keep thinking differently if we have to survive and if we have to grow.

Fifth, in terms of some principles of our experience on innovation is the day of the isolated innovator is getting less and less important. We need to innovate, we need to enroll support, we need to work in teams, we need to work in cross-functional cross-border cross-global teams to be able to be successful in innovation.

Sixth, we must actually encourage our people to constructively challenge ideas once they have reached a certain stage. Too early a confrontation will kill the idea. Too late a confrontation will probably involve an expenditure which could have been avoided. But intermediate stage — and the key, the trick is really in trying to figure out what is this intermediate stage: it shouldn’t be too early, it shouldn’t be too late. This helps us to look at the ideas from various angles and bring out nuances that could be critical while implementing them.

Seven, we must allow for creative failure when it comes to generating ideas. It is inevitable. No one likes failure, particularly business leaders but unfortunately all evidence suggests that it is impossible to generate few good ideas without a lot of bad ideas. And bad ideas are  expensive but they have to be tolerated.

As the physics Nobel Prize winner Faymann said, “I try to fail as fast as I can”. That is the best way to move forward on a new idea: fail as fast as you can.

Failure should be forgiven and forgotten as long as the lessons are remembered and recycled.

Finally, we must have a clear process to communicate the directions and areas where new ideas are short, where new ideas are to be focused. So employees can be realistic in their assessment of the opportunities.

At Wipro, we have set up an Innovation Council that acts like an internal VC for innovation. The council has a clearly defined goals and clearly defined objectives. That will fund projects that will improve business productivity for Wipro and its customers’ improved ability to win deals and reduce cost of delivery.

Wipro’s innovation initiative and its centers of excellence currently have a team close to about 500 people. Dedicated professionals on a portfolio of innovation products, projects in the areas of process improvements, in the areas of process improvements such as lean technologies, process improvement such as software engineering, execution, the factory model for delivering standardized service, new service lines, business solutions and R&D development of IPs and patents in the areas of wireless applications, areas of mobile telepathy et cetera.

At Wipro, we attempted to institutionalize the spirit of innovation through our innovation initiative about six years back and it has moved reasonably well. It could have moved better.

Today innovation accounts — and this is defined quite tightly, otherwise one can really blow it up — accounts for about 5% of our revenues, and our target is that within three years, we’re taking it up to 10% of our revenues. Because we find it important engine of growth.

Last year we filed for 58 invention disclosures on behalf of our customers and ourselves.

Wipro has been able to create a successful track record of innovating service delivery models, being among the first to remote deliver R&D, infrastructure outsourcing, testing and business process outsourcing.

Finally, to conclude, as Gary Hamel puts it, businesses are good at getting better but poor at getting different. It is very difficult for successful organizations to develop disruptive innovations that would threaten the basis of their success. Often they put out a business when some similar company or smaller company develops a radically new technology, which employees working in a booming telecom company in the 1990s would have suggested that free voice over internet telephony would be something that they could develop. It took a start-up Skype to make a success of this radical idea.

I have found that people excel when they’re provided a fair free and apolitical environment. At Wipro, we strive to provide an open culture which encourages diversity of opinions. Operating as we do in global environment, an 80% of our revenue comes from outside of India – 83% of our revenue.

We try to bring the best practice of our customers associates and internals and work to build the next practice.

Thank you for hearing me out. I’d be very happy to take questions.

Yes sir.

Question-and-answer Session

Male Audience: Sir, your company, your industry has grown at astronomical rates and many analysts expect it to continue to do so. This clearly has huge implications for your company, for your industry, for India and the rest of the companies that are delivering these services. What implications does this have for their customer, if the offshore outsourced IT service sector grows 50% of global IT spending, how can company’s internal IT organization be effective, how can companies use IT as a competitive advantage in that case?

Azim Premji: Let me just get you some broad perspectives on this because I have been meeting the media and I was in some senior-level meetings in New York yesterday and day before. I think a very important factor which you must appreciate is a huge shortage is building up of IT professionals in western nations. Please do not underestimate how serious the problem is.

We were going back already to the days which were there in the dot-com boom. And I’ll give you some leading indicators of that. And these are published figures. Accenture is today running attrition levels of 19% on a global basis and probably higher attrition levels in the United States. IBM is running about 14%, 15% attrition levels. We are running 15% attrition levels of our 6,500 employees in the United States, higher than what we run in India. And these are people primarily with H1B visas of Indian origin, with Indian passports.

A serious shortage is building up of IT professionals in Western nations and the prime reason for that is Western culture is not encouraging or students are not getting motivated to get into engineering, adequate number and those which are in engineering are not wanting to specialize in computer science.

Fact number one is that part of this scarcity of talent is being serviced by outsourcing, because countries such as India, countries such as China produce engineers in a scale proportion five times what US produces, four times what US produce, depending on the figures which US produces.

Second, I think what we must appreciate is that there is a certain part of work which does gets done in information services, which has to be done with the customer, on the customer site. It can be either outsourced surround to the customer — physically surround to the customer or it can be outsourced remotely. But the proportion which has to be done at customer site would probably be on a composite basis, about 40% of the headcount. For consultancy it’s probably about 80% of the headcount. So your number which you said that half the IT world could get eventually outsourced is probably little exaggerated, probably about 40% can be.

But if you’re getting into a situation where you are running into scarcities, I just see a global sourcing model as extremely strong productivity tool and a he survival tool and it is something which I think is inevitable. And it’s just not based on cost arbitrage, it’s just based on talent arbitrage, or based on talent leverage.

Yes sir?

Male Audience: I have a question related to changing mindsets. In our company, we outsourced a lot of our IT business a few years ago to Wipro and then the general attitude was – we’ll give the easy problems to Wipro and we’ll keep a second line of support in Dublin where we’ll keep the tough problems to ourselves. So we give the easy stuff over to Bangalore. How much of this attitude and mindset do you find it to be a challenge in your business and do you see it changing over time?

Azim Premji: Well, there is a huge change over time. It’s a huge change over time. But you know, companies go through a phase. In fact, we find in Europe — we have about nine centers in Europe which we call near-shore centers. Very physically close to the customer or the concentration of customers. In the first phase, very conservative customers particularly in Europe, particularly in continental Europe would prefer to work with a global sourcing company such as Wipro or Infosys or TCS, with physical proximity to their headquarters or physical proximity to the place where the work is done, which is where a near-shore center comes in.

And in phase two, they will be willing to move the work offshore and in phase three, they will be willing to get into more high quality work. I think there is a natural process of confidence-building within the organization. But if you ask me, India will do this year about 30 billion of software and BPO exports — call centers as well as backroom processing.

If you take software, of this, about I think $18 billion would be software services. All of BPO services are completely offshored and the processes which are getting offshore of BPO services are getting more and more sophisticated, including analytics, including pre-preparation by McKinsey of all the presentations to their customers, including 60% of the presentations of complex solutions being done at the back room. But in software services I would say of the $18 billion or $20 billion, maybe about 30% would be quality work which is in a way the heart of the organization. To give you an example and this is not just trying to market Wipro – we are very large in R&D services and we work with 10 of the 11 largest telecom companies in the world today and we are working on next-generation switch design and next generation cell phone designs. And a part of our work which is significantly increasing in terms of proportion is on a service level agreement basis, this is not on a time and material basis. We take responsibility for end deliverables. We take responsibility for — and cell phone design and get paid a significant part of our fees on the success of what we have co-worked with our partner on. So our front end fees are even often lower than our cost.

So the models are changing. As customers get more confident, they do more, and American customers particularly because of the track record of having worked in this offshoring model are increasingly getting into sophisticated work, including in the area of infrastructure support. One of our fastest growing lines today is global infrastructure support, which typically the IBM or EDS or Capgemini does. And the size of the contracts is increasing. So it’s not the $40 million, $50 million sub-contracts which are being considered for offshoring. It’s a $200 million, $300 million, $400 million contracts, not yet the $1 billion contracts.

Yes sir?

Male Audience: Could you talk a bit about the transition from a small family company to what you are today?

Azim Premji: You know, I think one advantage which we had is be completely turned turtle on our business. And we went into information — I came on the scene in Wipro in ’67 and we were primarily a vegetable oil company, a very small. The initial phase which we went through was transforming a very commoditized business which dealt with only wholesalers to building a very strong consumer brand business which dealt with the retailers who dealt with customers and with very strong inputs of branding and very strong inputs of distribution. That continued to be a little more traditional part of the business but it added on a lot of people in marketing and sales which we never had before and much more sophistication in financial processes.

The advantage in that business also was that we were again turning the business into a completely different approach vis-à-vis the market. So we had to recruit people who were professionals for it. It made the entire process of transition much easier. We went to the information technology business in 1980. And that team we built virtually from scratch. We transferred people in human resources and finance and little bit in logistics. But again we were able to intake fresh people, fresh leadership, fresh people from campus. I think the fact that we were transiting businesses so much made it much easier to be making a movement from so called family managed company to what we consider a very professional company today.

So it was not as hard as it appeared to be and we grew very rapidly so that also again made it easy. And we made it a point not to employ in the company any family members. So the signal was very clear that this is the message which top management and ownership is communicating upfront and standing by that message in terms of practice.

Yes madam?

Female Audience: In the current prevailing environment that exists in India and the software industry, what future do you see for entrepreneurs in India, especially when you consider global clients who place their bets increasingly with giants like Infosys and Wipro? And what suggestions do you have for the entrepreneurial talent which is currently growing in India and is probably contributing to the attrition rates in your companies?

Azim Premji: I didn’t catch the last part of the question.

Female Audience: So lot of youth in India are quitting large Giants like Infosys, Wipro and big brand names to start their own companies. What advice do you have for them as they struggle to compete with the bigger companies?

Azim Premji: You know, I can give you some overviews. I am not very wide into opportunities for entrepreneurs to start off an information technology in India. But I can give you some broad indicators, there’s a huge amount of venture capital funds and a huge amount of private equity funds in India now, both by Indian banks, so Indian investment bankers, whether it be ICICI or HDFC et cetera but by virtually all the large private equity bankers have offices and large funds allocated for India. As well as venture capitalists are looking at specialized areas in India. So I do not think that if you have a good idea and if you have the passion to make a success of that idea, you’ll be wanting in funds through these funds, you’ll get those.

I think what you need to do is to be clear how much passion you have — people like you have intending to make a success of it. It’s not going to be on the doorstep. It’s not going to be necessarily much easier than doing it in the United States. The markets are competitive. The quality of evaluation for opportunities by the funds has got now sophisticated. They will not put money on yoyos and they’ve got [numbering] by putting money on yoyos. If you want to be in the area of services, my strong advice is for god sake focus. You cannot build another way. You figure out that in the area of services you want to target either in the area of technology or in the area of enterprise, a specific segment where you build a base with one or two customers you can build a credibility with and then expand on those customers. I just find — we’ve had some people who left us and have come back to us and they tried to build clones of Wipro and the customer is consolidating. There’s no question on that. And the rich are getting richer and the big are getting bigger, and you see it in terms of movement of the top five companies from India in terms of share of exports. It’s probably going up by about between 1% and 3% a year, which is a typical indication of what is happening, not because they’re necessarily smarter but because our brand helps us in being able to give higher security to the customer with who is making a risk decision.

But there are opportunities but the opportunities are going to be as tough as the opportunities you see anywhere else in the world. It’s not on the platter for you.

Yes sir.

Male Audience: Well in the past, India has been taking over the business process outsourcing. And the question is, do you envision in the future India moving out of — not out of the business process outsourcing but more into the product ownership itself and product innovation and directly heading for the consumers?

Azim Premji: You know, information technology I think of this $30 billion exports which will take place this year, I think in the IT area, products would account for probably under 3% or 4% of it. Why is that happening? I think they’re just more low-hanging fruit in services, it’s that simple as that. It’s easier to make money in services with lower risk than it is in products. The bets are bigger, the uncertainty is more, but I think there is also more fundamental reason for it. Product innovation and product success is very very linked to markets. You have to be online with the customer and to be sitting in India and to be online with an American customer or European customer, you’re using your uniqueness of advantage of a remote delivery model very severely.

So what are you really bringing to the table which is unique, if in terms of access to the customer, you have to build a very strong base in the consuming market, so a very large part of your cost arbitrage or cost advantage gets whittled down. Two, it’s much riskier and there is low hanging fruits whether we like it or not, we are gravitating towards where the risks are less and the rewards are more. I do not see India emerging as a large product innovation country, unfortunately.

But the nice thing about it is that every product company is trying to build a service business. And it’s absolutely universal trend. Every product company wants the advantage of an annuity business. And generally margins tend to be better in services than they tend to be in products. And there are exceptions, of course. The Oracles are the exceptions, the Microsofts are the exceptions. But they’ve built a huge critical mass and they’re also trying to reap an install base through services.

Yes sir.

Male Audience: Yes, given the extreme growth that you quoted at the start of your talk, the 30% plus, I was wondering if you might be able to share a couple of specific examples of the challenges that you face and the organizations face, just trying to deal with that, whether it be in simply hiring talent, at that rate and so on, so if you could talk a little bit about what your role is in that and how the organization is doing with that?

Azim Premji: You know, scaling in the services business is a huge challenge. And just give you an example. We have 60,000 plus employees in our services business. And if you bring even a 30% in, I’m using conservative figures, technically you should be adding 18,000 employees a year plus attrition. And attrition levels are running in India today at about 13%, 14%. So you add that to the 18,000 people a year. Then you deduct productivity, I mean you try to drive for 8%, 9% a year, you’ll probably end up with 6%, 7% a year – 5%, 6% a year, including trying to build some amount of non-linearity in your business models. So you’re net, net, adding about 20,000 people a year, or more than 20,000 people a year. We visit about 160 engineering campuses. We visit about 25 business schools, including internationally and engineering campuses internationally but the volume of intake internationally is much lower.

I think what is relatively manageable to do is scaling recruitment standards, targeting recruitment and you can build it to scale. We’re able to scale well the induction process. We have a virtual university for induction for college graduates and a virtual university for induction of lateral hires. You can scale induction into quality processes so that you give a uniform phase of your customer’s concerns. I think the biggest challenge is to scale cultural continuity which is very important from a customer point of view and particularly important in a service organization, very very important. It requires a huge amount of engagement of supervisory time, middle-management time, senior management time and top management time, so for people like me are concerned. And in a group situation you have very pressing dynamics of competition, very pressing dynamics of growth. It’s not an easy challenge and I think you get into some compromises along the way. That we are finding as one of the biggest challenges which we face.

As an example, McKinsey did some studies on this and I think McKinsey has globally about 20,000 or 24,000 people and they found that they could not manage a growth beyond 20% a year without compromising on what McKinsey stood for. Interesting. I think that is a big challenge. Now the more higher quality work which you do, the more you’re not running a factory. And the more the cultural issues become more and more important, so the problem will get more acute or more challenging as we start going up the food chain and still try to grow at 30% a year. And whether we can do it or not, I don’t know. It’ll probably require the next generation of people in leadership to be able to do it better.

Yes sir.

Male Audience: Sir, I have a question about the ownership of Wipro. So even though it’s listed and it’s professionally run, the family still owns the majority of Wipro. So my question is, going forward how do you see the ownership changing and the leadership transitioning?

Azim Premji: No, I really don’t know. That’s an honest answer to give you. Because we’re running very cash flow surplus per year, free cash flow and we’re able to finance acquisitions and we’re able to finance growth through our internal accruals. We are listed on the New York Stock Exchange. We are listed on the Indian Stock Exchanges. Whether a part of the ownership will come down, yes, of course, part of the ownership will come down through two simple mechanisms. One is employee stock awards. We give stock award versus stock options. Now we switched to stock awards. And we give them every year and we give them between 1% and 3% of our total capitalization.

And second is through a funding of our foundation – the Azim Premji Foundation into which we’re constantly donating shares, which again leads to dilution. And that will continue and if we need to raise money, we will raise money and get diluted further. But Wipro is a good bet in terms of investment. So it becomes a little difficult to find alternatives which are better.

Yes madam? Can you use a mic please?

Female Audience: We were fortunate enough to hear the finance minister of India speak here at Stanford a few days ago. And he talked about –

Azim Premji: Who was here?

Female Audience: Chidambaram. He spoke about –

Azim Premji: No offense meant to you.

Female Audience: Of course. So my question — he spoke a lot about how two things are very important to him as he thinks about India’s future: one is maintaining the 8% growth rate of India, but number two, is to make sure that doesn’t come at the expense of the social balance and how sort of all segments of society should maybe be benefitting collectively. And I think this is reflected in a lot of the policy decisions that are being made right now in India. And I was wondering if you could speak a little about how you’ve found managing a business like yours that’s growing as rapidly and such a power player in a regulatory environment reflects that kind of a mentality?

Azim Premji: You know, I don’t think India is such a regulatory environment which is made out to be. I think our image is worse than our facts, frankly and I think we do a very poor job of selling ourselves. You just take the contrast with China. You know, we have an operation in Beijing and we have an operation in Shanghai. And we have about 170 Fortune 500 as our global customers, and I do get a chance to interact with them with the leadership there, the CEOs there fairly frequently, because they’re our important customer base for us. The general experience is that India is under projected in terms of its liberalization but equally important, the experience is that China gives with one hand and takes away with two consistently. They find it’s much easier to make money in India than it is to make money in China. There is much more predictability, there is much more transparency in the laws.

I think fortunately for us as a country, our political leadership is getting more and more divorced from the economic engine and the economic engine continues irrespective of them. And that’s no offense to them but they are less relevant. There are very few industries which are regulated and I think too much of the regulation is spun around the fact that insurance is not permitting 49% foreign ownership or retail is not opening up to multinational investments. But these are political compulsions which the government is sensitive to. Retail is a political compulsion because we have 21 million retailers in our country which employs a father, a mother, two children in the afternoon, would drop in after school and one paid employee, and whether you like it or not, the retail formats which are large will displace jobs. The contrary is that they will generate much more farm income and much more farm value add. So you will see probably creation of jobs there.

But politically it’s difficult for the government to bell the cat, and I think this is getting a lot of foreign visibility and therefore causing an impression that we’re very bureaucratic; I don’t think we are.

Female Audience: Very quickly, the one thing that would [inaudible] could really affect their businesses, regulation around education and with the reservation system at the universities and does that affect on your ability to source quality town in India in the future? Does that make sense?

Azim Premji: Yeah, this is a current set of politics which is going around on this. But please understand that we’ve had some amount of reservation around education and reservation around jobs now for more than 30 years. I think what has just caused a bit of a wake up is that they are trying to increase the proportion of it. I think part of the solution is that people in leadership, people in industry must be more proactive on that, in terms of participating, in terms of creating little more free and little more encouraging competitive environment for people who come from society, parts of societies, where they are disadvantaged in terms of their background and therefore not on equal competition. I think we’ve reached some equilibrium on this but part of the equilibrium will be that the reservation quotas will increase but nowhere as close to what is being talked about at this point of time. Is that a good step or a bad step, I think it’s a retrograde step but it’s a manageable step.

Male Speaker: We will take one last question.

Male Audience: These days everywhere you see in the newspapers and magazines that – everyone says that this century belongs to India and China. And like the professionals who are studying in America, they have already started thinking about moving back to India and China. So what do you – how do you foresee this trend in the future?

Azim Premji: I can tell you, you know, four years back, when the market was hot like the market is hot today for IT professionals, we were running attrition levels of about 14%, 15%, and 30% to 40% of that was to jobs in the United States, of higher studies in the United States. Today if you’re running attrition levels of about 13%, 14%, under 1% is for studies for jobs in the United States. So that trend is completely reversed. Why? It’s because job opportunities in India are better and compensation levels are much better now.

So people are not looking at US jobs as a major opportunity to make a lot of money anymore. I think that trend will continue. But the interesting trend we are finding and I think some of our colleagues also in the industry are finding, more experienced people today are wanting to come back to India. They’re wanting to come back to India because job opportunities are better, and they’re wanting to come back to India because compensation levels have become so attractive that they can even at a middle management level afford a decent standard of living in India. And that standard of living is improving because costs are not going up commensurately. So that trend is very much there. It’s a good trend.

I’m not too familiar with China, but China is also using some very strong incentives to get back talent, which we did not — we don’t find necessary to do, we’re getting it through a natural process.

Thank you very much.

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