Computers Today, November 1-15, 2000; Chief Guest

He is the old man in the new economy. Ex-Wipro Sridhar Mitta, now managing director of e4e Labs, has joined hands with industry stalwarts like K.B. Chandrasekhar of the Exodus fame to start a new kind of IT business called technology holding company. Speaking with K. Jayadev of Computers Today, the IIT alumnus and Ph.D from Oklahoma, US, stressed the need for Indian IT companies to concentrate on services rather than bother about not being able to deliver a global product. Excerpts:

Your firm e4e Labs would focus on services. Is IT services such fulfilling and fruitful business?

Services will be the main driving force in the IT industry. e4e Labs will incubate not just services, but E-services companies as well. We are looking at leveraging the technology (Internet) to deliver services easily and in a more cost-effective manner. People are asking for technology to deliver goods in a simple manner, which means a lot of back-end activity has to happen. In the next five years, huge investments would go in for developing infrastructure. More data centres will come up and the last mile of connectivity will no more be a problem. In this scenario, services will play a major role. Hence, the focus of our company would be to start 10-12 firms within the next three years. Using technology, we can have a dependable model-to double the revenues we need not double the manpower, but could add 10 per cent of the existing number and achieve the desired revenue.

How does a technology holding company differ from an incubator or a VC?

By technology holding company we mean that we will take the company from the idea stage to start-up, execution and, later, growth. We will be involved at every stage and are the co-entrepreneur for the partner companies. Technology holding companies provide thought leadership, global customer access, technology and operations expertise, long-term capital, professional services and physical infrastructure.

An incubator just provides the physical infrastructure, while the venture capitalist provides capital for a start-up. We want to empower a series of companies, which would work together while supporting each others' activities. We are more pro-active than the other two sorts. Most importantly, unlike the VCs and incubators, we do not take up the proposals that come our way; we identify particular areas to be worked upon, and then scout for a team which can be incubated to work on that area.

What do you think about the sprout of VCs and incubators over the last three months in India? Are they going in the right direction?

Though many call the boom in the VC and incubation areas a healthy sign, I don't think most of them are equipped to take this kind of job, and are mostly ending up in wrong directions. It is not just money but experience that these people lack. I think 90 per cent of these firms will die within a year. A survey done in the US on 490 incubation firms says over 70 per cent would close down.

We have a tendency to give different meanings for everything. It's happening with incubation too. The idea of incubation originated at the Stanford University and this led to the formation of Silicon Valley. The first firm which came out of this was HP. The idea was to provide physical facilities like space and power, technical people, some extra services and money. But here, this is not happening in that manner. Here, giving money seems to be the prominent affair for incubators. I have not seen a full service incubator in the country till date.

So are the VCs. They are trying to put in money to anything that is new. Today, wireless and optics are looked at very enthusiastically by them. They have understood that new technology will give higher returns. They take money from someone and give it to others. Some will succeed and some will fail. They will have to balance between the two. A VC is not for charity or the development of the country, he purely looks at the business perspective only. Here again, I feel many wrong investments are being made in India. I've understood only one thing in my experience with these VCs: they are the dumbest fellows on earth.

Today, everyone is talking about services. Has India lost the product development battle?

I always wonder why are we bothered about developing a product. IT services is less risky and returns-assured business. We should work towards improving this rather than bothering about not being able to develop a global product.

It is a wrong assumption that doing services is a low-tech job. In the US, doing services is a great thing. Today is the time to productise services and deliver them. Most importantly it is very difficult for Indian companies to develop products. To understand what kind of product to be developed, there is need to be near to the market-which is the US-and this involves high risk and high returns. After understanding the product need, you specify the product details and get into R&D, which we are very good at. This means low risk and lesser margins. The last stage is sales, services and support for the product. This is also very risky, but gives hefty margins. The US market is involved in the first and third stages of product development wherein lots of investments have to be made, while we are satisfied with the middle stage of doing R&D. I think there is nothing wrong in it. In fact, now we are saying that using the R&D expertise and the Internet as the distribution platform we will take up the services and support from the country and deliver them globally.

How long our service companies can remain profitable?

We have the capabilities and the manpower to do this and will continue to make huge profits. But this will happen for the next five years only. After that, these companies may not be able to make such profits. The problem is shortage of trained manpower. Global shortage has brought the contracts to India but will come down gradually after five years. The reason for the success of companies like Wipro, TCS and Infosys is because they keep making huge investments in training. Unless this is done the existing services firms will have problems.

Will the country be able to replicate the Silicon Valley model here?

That's near to impossible. Silicon Valley did not emerge overnight. It was a constant effort from every direction-from incubation to idea labs. It was an effort which was guided right from the initial stage. Above all, Silicon Valley has always been dependent on human network. Sharing of ideas was the most common thing among the entrepreneurs there. Here in India, sharing of ideas is considered to be a taboo for the growth of the organisation. Our people have not understood that sharing of ideas is not the main constraint but it's the implementation of it. This was understood by Silicon Valley long back and they worked within the network. Today opportunities are more, but time is not there. Money is available but implementation is the problem.

What advantages does India provide for E-service companies?

India provides the core skills in management and technology for the global market. The success achieved by our people in the US is a clear example for all these. In the electronic services area, the Internet plays a vital role and the country could be the centre of delivery of services.

With the Net, the distribution has become easier and a globally accepted platform has been created. With our expertise and knowledge of IT, we could place ourselves in the centre of this platform, thereby bringing in a new breed of companies to the country. I sense a huge potential stored ahead for Indians in the E-services areas. But this does not mean working on the regular jobs. Delivering services call for high value propositions.

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