NDTV: Is recession in the US economy inevitable?
Peter Sondergaard: It is almost difficult to say whether or not we’ll go into a true definition of recession but what we are seeing is certainly a halt in investment in information technology and financial sectors.
NDTV: Are you saying that there is a cut in the IT spends in the US?
Peter Sondergaard: Yes it is true in some sectors as a mention in financial service document by the US government. We are seeing discretion in spending in non strategic projects and traditional areas of PCs and peripheral equipment. What we are not seeing is that there is no reduction in projects meant for business growth.
NDTV: This means it is a positive IT budget this year?
Peter Sondergaard: We still anticipate that on a global scale IT budgets will grow at 3.3 per cent as compared to 3 per cent last year. Also, the global number hides a substantial disparity between what is a 14 per cent growth in IT budget in India to lower growth rate in US and Europe.
NDTV: How do you really compare the economic recession what we saw last and what we are hearing now?
Peter Sondergaard: For the IT sector it is difficult to compare the 2000-2001 situation and the present scenario. We are not detecting any slowdown overall in the IT industry. It is still an industry, which is driven by massive growth rates in Asia, Africa and Middle East. At the same time we are also seeing tremendous merger activities in the IT industry unseen in the previous period. The industry is going through a level of consolidation and with the availability of relatively cheap capital to fund large mergers, has meant that the shape of IT industry is vastly different. In the coming period we’ll see the features and functions of software industry starting moving out towards either hardware industry or services industry.
NDTV: Is Microsoft too ambitious over Yahoo takeover bid?
Peter Sondergaard: I don’t think it is too ambitious for Microsoft as they obviously went for this deal because it makes sense from business perspective. I think it will be a long process looking at how ownership structure can play out obviously with many new players giving stiff competition. But such a deal would consolidate Microsoft’s second tier position in the internet advertisement market after Google.
NDTV: What is your view on consulting and technology major Capgemini as a takeover target?
Peter Sondergaard: There are a number of European service companies that are at this stage obvious takeover candidates particularly for cash rich firms. On the question of whether it is going to be value destructive, I think it will largely depend on the kind of deal. If it has to be funded externally then it could be value destructive. The major challenge when you acquire players in Europe is labour related issues in particular if you acquire services companies with large installed base in middle and southern Europe.
NDTV: Do you think many Indian companies are possible acquisition targets?
Peter Sondergaard: The services industry is the next stage after hardware and software and I think that we see a global market that has been aligned more when it comes to valuation structure. There are very few North American and European services players that actually have large capital to afford large scale acquisition. But we should not also overlook the obvious other candidates.
NDTV: Do you really believe that there is substantial market for the IT industry in emerging markets?
Peter Sondergaard: Clearly, there are enormous opportunities for the IT industry both for local and international companies. In the course of next 5-10 years, you will see substantial growth in IT industry in emerging economies.
NDTV: How do you really compare it with the US and Europe?
Peter Sondergaard: If you look at IT budgets of organizations then you will see budget hike in western Europe and the US is 2-3 per cent as compared to 13-15 per cent in India and China.
NDTV: What strategies do Indian companies adopt to remain competitive under present economic scenario?
Peter Sondergaard: Brand is the most important tool for Indian companies to attract the right kind of skill set. In next few years cost is not going to be the primary determinant but it quality will be. Gartner predicts that the quality of IT projects will decline because people with very few years of experience are entering the IT market. Importantly, the Indian companies can leverage their brands to attract right kind of skill set.
NDTV: What’s you take on wage inflation given the talent crunch?
Peter Sondergaard: We are seeing a talent freeze that is driving up prices of labor, which now means cost of certain services is same in India as compared to US and western Europe. Over the next few years we’ll see inflow of skills in Asia from Europe because of high demand.
NDTV: Many are saying glory days of IT industry are now over. We’ll have to live up with moderate growth. What do you have to say?
Peter Sondergaard: The IT industry has just started to make a serious impact on the world, which it hasn’t yet done so. We have just started on this journey and we’ll see much more over the course of next 5-10 years.