Vineet Nayyar bats for tech change, says reinvent to be in game

He spoke about undercutting in legacy business and lower margins. Competition does drive down prices, he said, adding that if you are in new areas of tech, prices may not be relevant. He identified two trends: In tech areas, margins will be significant. In traditional areas, margins will be under pressure.Below is the verbatim transcript of Vineet Nayyar’s interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Latha: As we know, Tata Consultancy Services (TCS) is the latest one to speak about lower orders. What is your sense, now are all IT companies definitely going to see lower orders and they are all going to give us lower guidance? A: I think technology is undergoing a significant change. There are mega-trends which exist now which are going to have an impact. Now whether it is going to increase the demand for technology or decrease, I think the answer is clear. Technology is becoming more pervasive so its use is going to grow. However, there is a pause at this moment because the nature of the change is significant. On one hand, with automation, the need of manual intervention or need of human intervention is coming down and on other hand the use of technology is becoming hugely pervasive. So, what will come out in the wash? We quite don’t know but one thing is quite clear, on one hand you will see the manual intervention coming down per segment and on other hand you may see the segments growing quite rapidly. Sonia: Would you say these lower orders are not because of the economic slowdown but because of the technological disruption so a lot more cloud computing, etc, is it more secular, more long-term in nature because that is the fear that most people have? A: In my view yes. You will see situations where economic downturn or upturn may change the outcome somewhat but the mega-trend is technology change and the needs which emerge or diminish on account of that.Anuj: Do you get a sense that Indian companies will lose their edge in this disruption? A: No, I don’t think so because we are now because of our experience, we are now at the cutting edge. Yes, we will have to compete, we will have to reinvent ourselves but I don’t see anyone who can come close and I may be sounding very cocky but I don’t see anyone who can come close to the Indian capability as it exists now. Latha: What about orders from social, mobile, analytics and cloud (SMAC) area, are there anywhere near compensating for the loss on account of legacy business and because of automation? A: Yes, it will; it has to. Just think about how our life has changed and multiply it by the number of human beings on this earth and you will see the kind of impact it is going to have. Anuj: By when can the companies reinvent themselves and how long do you think the slowdown lasts, two years, 2017, 2018, is there a timeline?A: My view on that is somewhat different. There is going to be increase, we will have the larger share of the increase but percentages can be misleading because 25 percent growth when we were doing USD 50 billion is one thing, 25 percent growth when USD 150 billion is going to be a totally different ball game. So, let us not talk of percentages, let us talk of growth and what is the share of that growth India is going to have. Sonia: Is Tech Mahindra seeing a cutting back of orders, are you guiding lower as well? A: There are marginal disruptions but like every other major IT company in India we have our own challenges and we have our own solutions. Yes, the growth rates are not going to be 20 percent as you have seen earlier because 20 percent was easy when we were at USD 500 million. 20 percent is not that easy when you are getting on to USD 5 billion.Latha: Can you give us a little more color on that, any specific geography or any specific vertical where you are seeing the orders shrinking?A: I think it is pervasive, in certain countries you have the traditional business going on still. Even in US and England, at the moment there is a huge preponderance of traditional business going. However, both our clients and we feel that to exist, to grow, and to compete we will have to move to the new platforms very quickly. The pace of change in technology is always faster than in the traditional economic endeavors.Anuj: Will this also mean a lot of undercutting in the legacy business and hence lower margins? A: I don’t know, competition does drive down prices but if you are in the new area of technology then perhaps prices may not be that relevant. So, you may see two trends, in the new technology areas the margins maybe significant and in the traditional areas margins could come under pressure. Sonia: Do you think hiring by IT companies could decline over the next 6-12 months? A: Let me say that intensity of human intervention and human endeavor is going to come down per million dollars or per unit of money. However, on other hand, if we expand fast enough, we may be able to grow. However, certainly you are not going to see the kind of increases percentage wise or even perhaps in absolute terms which we saw in the first decade of the century and we saw in the next five years of the next decade. Latha: For the shorter term how important is the US Presidential Election, is that going to bring more negative impact? A: I don’t know what the results are going to be, it could be disruptive, it could be a continuum; depends on who wins.