Cybernet-SlashSupport to reduce exposure to U.S. market
SOURCE: The Hindu
DATE: August 1st, 2008
Mohit Soapbox:
The slowdown observed across the industry is the lag of decision making activities across the corporations in the US and the pushing down of priority of offshoring as a long term cost saving opportunity. Cognizant which declared their results recently felt similar tremors and have changed their guidance to a more cautious outcome for the rest of the year. Will it get any better - not for the rest of the year. Most of our clients are continuing to re evaluate their offshoring and outsourcing strategies in larger context and in many cases have prioritized other cost saving opportunities which have a short window of delivery of result. This is going to be challenge for anyone engaged in this industry and I am not sure if Europe is the answer to all the vows! Everyone seems to be constantly talking about rejigging their platform and moving to Europe, reducing their US exposure. This according to me is wishful thinking and the firms will continue to face similar challenges in Europe too.
ARTICLE
The deepening economic crisis in the U.S. has forced Cybernet-SlashSupport (CSS), a technology operations’ management company engaged in providing services such as tech support and remote infrastructure management services, to quickly re-jig its game-plan both in terms of geographical focus and business strategy.
In an interaction with The Hindu, Shiva Ramani, CEO, said that CSS had decided to bring down its exposure to the U.S. market significantly. “We have picked up Europe as a bigger focus. Over the last 9-12 months, we have started targeting more aggressively the European market,” he said.
The company currently has 87 per cent exposure to the U.S. market. Mr. Ramani said that CSS was targeting to bring this down to 65 per cent next year. “We expect Europe to contribute to around 25 per cent of our revenue in the next 12-18 months. Currently, 6 to 7 per cent of our revenue is coming from Europe. As part of this focus on Europe, we have also relocated sales force to Europe,” he said.
Mr. Ramani said that he had suspended his confidence in the U.S. “ I have to see more data to be more comfortable,” he added. The current scene in the U.S., he said, was forcing CSS to accelerate investment into other geographical locations such as Europe. “I believe the worst is yet to come. The big boys will survive. I don’t see any gloomy picture for them. The mid-tiers will struggle. The smaller ones could thrive because of speciality or niche focus,” he said.
Given the current context, he felt companies had to keep a good mix of customers across verticals. “Whoever has got a diversified global portfolio (both geographic and across verticals) will survive. IT companies with large exposure to financial services space will be impacted. Other than financial services, which have already been hit in a big way, retail could also get hit. Transportation and logistics would do well,” he said.
The IT budget, he said, had two components to it - CapEx (capital expenditure) and OpEx (operating expenditure). “CapEx is hardware, software, software implementation etc.,” he said. The advantage of being a small company was the ability to adapt to a changing environment, he said. “We are targeting our customers’ OpEx budget, which is month-on-month recurring expense. We are well positioned to target the OpEx space because of our inherent strengths in infrastructure management services and tech support,” Mr. Ramani said.
IT revolution 1.0 was all about CapEx spend (building applications etc). In a recession environment, OpEx was the one that needed to be supported with offshore work. “Since we are doing OpEx related work, which is fertile for migration and offshoring in a recession or lack of budgetary environment, we are seeing a lot of positive activity in the market place. In recent months, we have seen renewed activity, engaging with customers on work in the OpEx outsourcing space,” he said. Mr. Ramani said that this was not a conversation that these companies were having with CSS 2 to 3 years ago because they were focusing on the CapEx. “To me, this is outsourcing 2.2 of sorts. OpEx outsourcing is the next wave in the outsourcing space, according to me,” he said. CSS positioning today revolved around providing optimizing solutions relating to the operating expense. “My value proposition to customers in the OpEx play is not cost savings, but actually increasing market capitalization with the same top line. And, our proposition seems to be a lot more exciting to a CFO,” he said. Asked about the attrition rate, he said that the attrition rate had come down to 10 per cent from around 18 per cent earlier on consolidate basis “Cost arbitrage is not narrowing down dramatically. The productivity among employees has gone up. Hence, the rise in salary cost has been offset by increase in productivity. I do expect salaries in the IT industry to become realistic. However, I don’t expect retrenchment,” he added.
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