The Indian IT-BPO industry is coping with a lot these days

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NASSCOM's prediction of a lower growth rate - around 21-24% - is just one of the problems. Analysts say, the number of new deals being signed have come down compared to last year. Companies are resorting to wage freeze, lower increments, slower hiring and now even pink slips. The irony is, its happening at a time when the industry is facing the challenge of finding quality people and coping with a 20%-30% attrition rate. The bad news has been trickling in for sometime. Reports suggest nearly 400 employees at Convergys Corp's Malad centre in Mumbai have been asked to resign because the centre is closing down. Lehman Brothers captive in Mumbai too is set to hand out pink slips to over one-fourth of its employees. Patni, 24/7, Keane India, Fidelity Management and Research Company, lay offs have been reported everywhere. Is it time for a reality check then? Experts are divided on this. As Arun Jethmalani, CEO ValueNotes says, "It's indeed a wake up call, for its clear the current business model cannot work with such high inflation rates. It will be tough to maintain growth and margins will be squeezed in the short term." What's also worrying him is that the number of new deals coming into India is one sixth of last year. Indeed, a lull in business acquisition and the downturn in the US economy is affecting us. But Sudhin Apte, Senior Analyst and Country Head-India, Forrester Research feels job cuts is not only because of these two reasons. "The industry is at a different level today compared to five years ago. Earlier recruitment was happening only from a few good colleges, now benches are being filled by candidates various institutions. Some of them don't match up inspite of training. It's the under performers who are getting the pink slip," Apte explains. Most lay offs are among the bottom 5% of the appraisal list. Companies have realised they need to manage their bench better and cannot go on pampering their employees if they don't perform.



"In fact, earlier too non-performers were asked to go, but its only now that the issue has come into the limelight," says Ashutosh Vaidya, Head, Wipro BPO. For companies like Fidelity, 24/7, Patni and other third party providers, they have 10% to 15% people on bench who are under training primarily to fill up for attrition and growth. "With sequential quarter over quarter growth slowing down to near zero, the unutilised bench hits productivity and margins significantly. So these firms are taking out low performers and will continue to reduce or stop fresh hiring," says Avinash Vashistha, CEO, Tholons. He expects slowdown to continue for the next six months. But it’s important to see slowdown in right context. As Som Mittal, president of NASSCOM says, "As companies evaluate business models and adapt to marketplace, workforce will emerge as a critical element. And, indicators suggest a revival in tech spending during the second-half of 2008."

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Drop By Drop

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Dreaming of a better future for India's downtrodden farmers, Bhavarlal Jain created the world's second-largest micro-irrigation company.
Until recently Ram Krishna Khodpe and his four brothers were eking out a meager living cultivating cotton on their 5-acre farm in the semiarid region of Jalgaon in India's western state of Maharashtra. To supplement his family's income, Khodpe ran a small shop selling sugarcane juice.

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Then two years ago he saw a drip irrigation system being demonstrated in his village. This uses a motorized pump to push water through long black plastic tubes that are laid out in rows along the base of the plants. Instead of flooding the field, just the required amount of water "drips" slowly through intermittent holes in the tubes directly onto the plant's roots.
This irrigation-efficient system, Khodpe was told, could double crop yields and save up to 60% of the water that flood irrigation methods consume. The system wasn't cheap: $600 an acre, of which half would come from a government subsidy. Scraping together the family's savings, Khodpe took the plunge.
He reaped a bonanza. The yield on his cotton crop increased two and a half times, earning Khodpe $1,200 an acre, enough to recover the cost of the device in the first season. The family landholding has since expanded to 40 acres, says a beaming Khodpe as he walks visitors through his flourishing fields.
Changing the fortunes of poor Indian farmers like Khodpe has been a lifelong mission for Bhavarlal Hiralal Jain, founder-chairman of Jain Irrigation Systems, the leading supplier of this technique in India. Pursuing this altruistic goal doggedly over a 45-year business career, he's achieved global scale for his Jalgaon head-quartered company. Jain Irrigation has become the world's second-biggest manufacturer of agricultural micro-irrigation systems, behind an Israeli outfit, Netafim.

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In India Jain's tubes cover more than half of the 4 million acres using the microtechnology. But that's still barely a trickle in a country with total farmland under cultivation of 300 million acres, of which less than half is irrigated at all.
The much heralded Green Revolution of the 1960s, with its miracle seeds, made India self-sufficient in staple foods, but in the last decade agriculture's growth rate has notably stagnated. Today Indian farms, highly fragmented and with relatively little in the way of state water projects to channel the seasonal monsoons, produce some of the lowest yields in the world. For example, rice yield per acre on average is 1.3 tons versus 2.5 tons per acre in China. Poor productivity keeps Indian farmers trapped in a cycle of poverty, despite all the subsidies the government doles out. This year's budget provided for a massive $14 billion waiver on farm debt with state-owned banks.
Stepping up public investment in the sector, notably in irrigation, has become a priority for the government. That's no political wonder--65% to 70% of India's population is dependent upon agriculture for their livelihood. In 2004 an official study group said efficient water management through micro-irrigation could help many save on fertilizer and labor, as well as the precious liquid itself.

All good news for Jain Irrigation, whose revenues last year rose 58% to $545 million with net profits increasing by 59% to $31 million. (The company has broadened into contract farming and agricultural tissue culture, and is the country's largest processor of fruits and vegetables and the biggest producer of dehydrated onion.) Since 2005 the company's share price has tripled. Despite a recent fall in the Bombay market, Bhavarlal's 32% stake, which he holds with his family, is worth $300 million today.
What works in India applies abroad. So Jain has acquired six companies overseas since 2006, including irrigation firms in the U.S., Israel and Switzerland. According to analysts a UBS Securities India, these acquisitions give Jain a fuller product range, enabling it to extend its reach into mature markets in the U.S. and Europe.
Bhavarlal, 71, views this momentum as incidental to the higher purpose enshrined in Jain Irrigation's mission statement: "Leave this world better than you found it."
"Money has never motivated me. It's always been the cause," he declares from his sparsely furnished office at Jain Hills, the headquarters. On his office walls are pictures of people he admires most: Mahatma Gandhi; India's first prime minister, Jawaharlal Nehru; and John F. Kennedy. "They were all dreamers, and so am I," he says.
His friends and colleagues describe him as an agricultural guru. "B.H. is a son of the soil entrepreneur who truly knows the pulse of rural India. I've learned a lot from him," says Kiran Mazumdar-Shaw, chairman and managing director of leading biotech company Biocon, who got to know Bhavarlal in 1979 when he was a supplier of papain, an enzyme extracted from papayas that her firm was using.
Success hasn't motivated Bhavarlal to give up his strict Gandhian lifestyle. He is a vegetarian who eats only home-cooked food, avoiding processed items like biscuits and chocolates. His preferred attire is white cottons. "I like white because of its purity." This color penchant extends to the surroundings--Jain's offices and factories are mostly painted white. He makes a concession in the yellow, green, blue and brown of the company logo. These are the colors of nature, he elaborates, symbolizing the sun, trees, water and earth.
Having survived four heart attacks and two bypass surgeries, Bhavarlal has handed over operations to his four sons, all of whom work in the company. But he still wakes daily at dawn and treks to the highest point on Jain Hills, where he meditates and does yoga. Company executives take turns accompanying him on his early morning walk to update him on important issues. His grandchildren tag along, too.
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From Bhavarlal's meditation spot, the 1,000-acre complex of Jain Hills itself appears a shining advertisement for what micro-irrigation can achieve. Set in the midst of parched lands, it's an oasis of mango and banana trees, home to deer, peacocks and several other species of birds. The complex includes a training center for farmers, a demonstration plot and research and tissue-culture labs. Tucked away in one corner is a house where three generations of Jains live.
Bhavarlal was born into a Marwari family in a village not far away. His father and uncles were farmers and petty traders. Having bolder ambitions, Bhavarlal moved to what was then Bombay to study commerce and law, after which he prepared to join the civil service. But his mother, who never went to school and had lost nine children before Bhavarlal was born, urged him to reconsider. "She inspired me by saying I must do something that would help the cattle and birds, and all those who are disadvantaged," he recalls.
It took a while, but Bhavarlal found a route to the land. He began trading in agricultural products--tractors, fertilizers, seeds and pesticides. As the business grew, other family members got involved as well.
In 1978 they moved into manufacturing, starting with papain and then plastic pipes. Bhavarlal stumbled into his niche when he saw a drip irrigation system in 1985 at an agricultural trade show in Fresno, California. Handing over the trading business to his family (but retaining the plastics factory), he plowed ahead.
In his initial attempt to procure technology from Israel, where modern micro-irrigation had been invented, he found no willing partner. He persuaded James Hardie Irrigation of Australia to license its technology, but it took him more than a year to persuade India's hidebound bureaucracy to let him acquire the know-how.
Harder still was selling to India's marginal farmers who own less than 2 acres of land on average and could ill afford the $400-per-acre cost of the system. By then Bhavarlal's sons had joined the family trade and were involved with him in grassroots marketing, making house calls on farmers. Rather than talk about the technology, they emphasized the importance of conserving water, touting the slogan "More crop per drop." This underscored the higher yields farmers could get with less water.
"We've always been selling a concept, not just a product," says Anil Jain, 43. Model farms were established to show farmers how their fields could flourish by using this sophisticated irrigation method. Even so, it was a slog. "In those days only 10 out of 1,000 farmers whom we approached got sold on the idea," recalls brother Ajit, 42.
When the government introduced the micro-irrigation subsidy in 1990, it lit up business. With sales way up, the company expanded into fertilizers, plastic sheets, food processing and solar water heaters. That wasn't the end of it. In 1994 the Jains raised $30 million on the Luxembourg Stock Exchange, using it for a slew of new ventures, including merchant banking, granite quarrying, software and telecom.


Bharvaral says that despite his devotion to an agricultural mission, he became worried, as India first began to boom, that his company was too narrowly based to prosper. So it rapidly diversified.
Disaster ensued. "We couldn't handle the diversity," admits Bhavarlal's eldest son, Ashok, who's now vice chairman. By 1999 losses had piled up to $40 million and the Jains had defaulted on their loans to banks. There was no money to pay for raw material or even salaries to workers. Jain Irrigation's stock plunged from a high of 450 rupees in 1994 to 9 rupees in 2000.
The nightmare lasted until 2002, when the Jains got a partner in Texas Pacific Group's Aqua Fund, which invests in water and renewable energy. Aqua took 49% in Jain Irrigation for $44 million, valuing the company at less $100 million. The Jains brought down their stake from 70% to 30%, conceding four board seats to Aqua's representatives.
Anup Jacob, the former partner at Aqua who sat on the company's board and oversaw its painful restructuring, recalls visiting 30 micro-irrigation companies before investing in Jain. "It had a great underlying water asset, and I was really confident that the Jains could pull through. They had their name on the door, so failure was not an option for that family."
It was a long haul back. The lossmaking divisions were either sold or shut down, and the debt the company owed to some 50-odd banks was consolidated and paid off. "While we focused on getting the finances in order and introducing a culture of cash-flow management, we let the Jains do what they knew best--make and sell their products," says Jacob, now a partner at Richard Branson's renewables-focused Virgin Green Fund in San Francisco.
Aqua doubled its money in three years, selling in 2005 to a group of investors, including Temasek. "But we sold too early," says Jacob ruefully, noting that Jain Irrigation's market capitalization has since jumped to almost $1 billion.
As for the Jains, those unsuccessful ventures are listed as "failings" in their corporate history. "It's all right if we lose money. But we must never lose the lesson we learned," says Bhavarlal, adding that the word "profit," which was never part of his vocabulary, was subsequently incorporated into the company's mission statement.
Yet expansion is back on Jain Irrigation's agenda. Anil, who spearheaded the overseas acquisitions drive of the last two years, is targeting the number one position that unlisted Netafim occupies. "India's the world's fastest-growing market for drip irrigation. We'll catch up soon enough," he says confidently. UBS estimates an annual 30% growth in the company's revenues until 2010, driven by the ongoing reforms in India's long-neglected agricultural sector.
The Jains want to leverage their water expertise beyond agriculture. They feel that transforming Jain beyond irrigation is the logical next step. To that end they have recently forged an alliance with Mekorot, Israel's state-owned water utility. Giora Gutman, chief executive of Mekorot's international arm, says that they will jointly tap emerging public-private opportunities in India's water sector. Jain's youngest son, Atul, who is overseeing this expansion, discloses that they have been evaluating a bid on a tender to supply water to Mysore in southern India.
For his part, Bhavarlal continues to have utopian dreams. He's working on a project to distribute low-cost filtered water to poor villages. His other obsession is renewable energy, for which he's devising a model that combines solar, wind and biogas. As for the core business, Jain foresees a dramatic increase in global food prices in the next three years. This, the patriarch predicts, will give agriculture its due place in the sun: "Our time has come."
By the Numbers
Farm Economics The soil is still a bedrock of the Indian economy, but the nation is looking to boost output under tough conditions.
17.5% Agricultural contribution to India’s GDP, versus 11.7% in China.
4.5% Growth rate of Indian agriculture in 2007–08, versus India’s overall 9% GDP growth rate.
93 million tons India’s annual production of rice, its biggest crop.
$3 billion Estimated size of India’s drip irrigation market, 2008–12.
Sources: Economic Survey of India 2007–08; Ministry of Agriculture; UBS Securities India.
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Retailers Take a Slower Road in India

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Web Mart Inc., which unveiled plans to enter India with a joint-venture partner two years ago amid great fanfare, will open its first wholesale store next year, but it won't comment on future plans. Three Build a bear workshop Inc. franchises in India opened by Murjani Group have closed. Straps, a chain run by India's Oswal Group that featured Wonderbra lingerie from U.S.-based Hanesbrand Inc., has closed its more than 20 stores. Big German retailer Metro AG, after five years here, operates only four wholesale stores; the company says it is taking its time developing its Indian business.

India's retail industry -- including everything from carrots to cars -- clocks around $350 billion a year in sales. That figure had been expected to double in the next seven years. But now, some retail executives are taking a closer look. Growth is less than hoped for. And thousands of new shops have sprouted in the past few years, so there are more players competing for the same consumer.
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The Grand Sigma Mall in Bangalore. Indian retailing isn't growing as fast as many had expected.
Just three years ago, an explosion of conferences, analyst reports, Web sites and magazines predicted the arrival of a new Indian consumer who would change the global retail landscape. The first modern retail stores here were so popular that many entrepreneurs thought people would buy almost anything at any price. They were wrong, as both large and small retailers are discovering. For some, the forecast retail boom that promised jobs for Indians and a new market for global retail giants is already a bust.
"I was an eternal optimist; now I have become a realist," says Kishore Biyani, chairman of Pantaloon Retail India Ltd., India's largest retailer by sales, which has revamped its expansion plans as it discovered more about Indian consumers. "Everybody has miscalculated."
Most retailers say they are grappling with the same problems: rising costs and fewer buyers. In the early days of the boom, retail rents and salaries soared, though recently they have started to come down a bit. Many outlets discovered that consumers didn't really want their products. And unlike shoppers in Asia's other booming economy, China, Indians are rarely willing to pay three to 10 times more for an international brand than for its domestic equivalent. The average Chinese consumer has more disposable income, and more than a decade extra of experience with international brands.
Ritu Sureka opened her home-furnishings store "All Living" in the Grand Sigma Mall, Bangalore's newest, in 2005. She was sure the Indian tech capital's programmers and call-center workers would spend their rising salaries on stylish lamps and pillows for their new homes. Now she is advertising a 70%-off sale, and still doesn't make enough money to cover the rent. "I think this retail thing has been a failure," the 45-year-old says.
Nevertheless, India still generates excitement among some investors. Earlier this month, both British retailer Tesco PLC and Vornado Realty Trust, one of the largest mall developers in the U.S., announced plans to enter the country with local partners.
Some retailers, especially those catering to budget shoppers, are thriving. And deep-pocketed companies like grocery-store chains are willing to shoulder losses for a few years, assuming Indians will become accustomed to mall and supermarket shopping instead of buying at the country's millions of mom-and-pop stores.
Shoppers Stop Ltd., one of the first companies in India to attempt modern clothing and houseware chains, has posted net losses for the past two quarters. Some companies that still have big plans, including Indiabulls Financial Services Ltd. and Aditya Birla Group, have changed tack, closing some stores and making management changes.
"We all have to go through some restructuring and shake-up," says Thomas Varghese, chief executive of the Aditya Birla retail unit, which has more than 500 grocery stores. Most were built in the past two years, and few are profitable yet. "The Indian consumer is a damn tough customer."
If retail growth sputters, India will lose an important avenue for growth to trickle down to the masses: the jobs retail provides.
The country's recent economic expansion has been fueled largely by its service sector, and hasn't created millions of manufacturing and export jobs in the way China's boom has. But the Indian government had counted on retailing to soak up millions of rural and young job seekers. Two years ago, Mukesh Ambani, chairman of Reliance Industries Ltd., projected that thousands of his new stores would provide jobs for "500,000 young boys and girls in the next few years." Since that speech, the company has built around 700 stores, an impressive number but far from earlier targets.
In the Grand Sigma Mall, not far from Ms. Sureka's shop, an outlet that sold VF Corp.'s Wrangler Jeans has pulled out. On the ground floor, other stores are empty, including a former Reebok store.
"Everything is overpriced here," says Vignesh Vishwanath, 21, a computer programmer for Microsoft, drinking coffee with a friend at the mall. "This coffee, for example, is 85 rupees here. At the cafe near my house it is only 60 rupees. You can never compete with the local market."
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