Business in 2017 will be better than 2016 feels Malcolm Frank, EVP-Strategy & Marketing of Cognizant. He does not believe the environment is US is hostile or fearful although, he agrees concern over Trump administration is pure conjecture at this point.
While quarter one has been good so far, the company’s guidance of 7.9-10 percent growth for the full year 2017 is a cautious one, he tells CNBC-TV18 in an interview.
Clients have started moving from traditional to digital businesses and while overall IT spending may be slowing down, the spending on digital is increasing, he says.Below is the verbatim transcript of Malcolm Frank’s interview to Kritika Saxena on CNBC-TV18.Q: What is the growth outlook looking for Cognizant for the IT industry?
A: There is the slowdown in legacy and then the acceleration in digital, so, that is where firms need to position themselves for that shift. From a Cognizant perspective, the first quarter calendar of 2017 is certainly a healthier, more stable environment than it was in 2016. Q: 2017 would be a better year than 2016?
A: It is still early. We are in early February, but at least what we can say in the first half of the first quarter, in our context we are seeing things starting to really stablise around what we see in the business. Q: So if I look at your full year guidance of 7.9-10 percent, it is a wide range. If I look at your numbers it is at 8.6 percent. On the higher end, it would mean that 2017 would be better but is this a cautious guidance in that case that you have given?
A: Yes, it is and the caution is really driven by what we experienced as a firm in 2016. We had to bring the number down over the course of the year so we are being appropriately cautious as we enter the year. I think as also results what we have seen across the industry as well. Q: Let me then ask you about the Trump administration. Lot of talk about protectionism, you are at the heart of where the conversations happen. Firstly the new visa bill, the increase that has been proposed is significant, from USD 60,000 to almost USD 130,000. What I want to understand from you is what is the impact or estimated impact in terms of margins. Analysts have given rough estimates for Indian IT players for the TCS, Wipro, Infosys’s of the world, 2.5-3 percent at least in terms of a margin impact, would that be a fair estimate?
A: We have modelled it out for ourselves, we have modelled it out for the competitors, for the whole market. Some of those numbers have been correct, but this is all hypothetical. It is a dangerous business we have learned to be in. I am trying to predict politics. Q: But you have to be prepared.
A: Totally, absolutely, and so we have run through the modelling, the different scenarios, we have been very active in terms of how we would react ourselves as an organisation and we think that the industry needs to react. We have been very active in terms of conversations in Washington. Q: Based on the numbers that you have worked with or you are working with or you have modelled, what is the impact on margins that you are prepared for or impact on numbers as a whole that you are prepared for?
A: We are not comfortable saying that publically just because I think it would be irresponsible to do so. We just don’t know. Q: It is conjecture at this point?
A: It is pure conjecture.Q: Fact of the matter is that protectionism concerns have increased after the new administration has come in.
A: No question about that. Q: US clients are not right now fearful of dolling out contracts?
A: No, hostile, fearful, those are strong words. They always have risk they need to manage and mitigate. I think they are certainly paying attention to this issue. Q: You don’t think it as extreme yet, it is still conjecture at this point of time?
A: Yes. Q: As far as on-going investigation on India business is concerned, on improper payments, you have recently made a declaration on how the amount is about USD 6 million which is USD 1 million higher than what was anticipated earlier, can you take me through, I understand that this is sensitive issue and the investigations are on-going but so far can you share with us what has been the findings of that investigation and where does India stack up right now as far as that investigation is concerned?
A: It is on-going, it is sensitive, so, there is only so much I can say and I hope you can appreciate that, but this is now been going on for five to six months. It has been very thorough. So, we self-reported, it has been driven by our audit committee, we have had outside lawyers driving through this and there has not been a stone unturned. So, it has been very thorough and you are right, what we reported several months ago was approximately USD 5 million through looking at everything that grew to approximately to USD 6 million. It is something that we have taken very seriously and candidly we have been upset about. However, at the same time it is contained and it is one that hopefully as the process goes, we can get it behind us.