“Netsol was my passion then and it continues to be my passion now”

IBM's acquisition of Bangalore-based Network Solutions last year was
big news and there were apprehensions that ran rife in the market as to what
would happen to the future of one of the biggest and most successful solution
providers in the business. But Sudhir Sarma says that his com­pany's
acquisition by IBM was a well-planned move and indicates that post-acquisition,
Netsol still works and operates like before. He also feels that many early appre­hen­sions
of the exercise have ceased to exist now. He is now happy that the company has
retained all of its custo­mers post-acquisition.

What would you say is the status of Netsol as a com­pany post the IBM
acquisition? Have there been any drastic changes in the way the company's
operations are run now?

Post-acquisition, Netsol is a 100 percent subsidiary of IBM. We are a part
of IBM India and in fact the acquisi­tion was done keeping in mind the Indian
market needs. As regards the run­ning of the company, we have not seen any
dramatic changes in the way we operate now as compared to the way we did before.

Yes, we are an IBM com­pany, but we still have a lot of independence and are
running our operations just like before. In fact, even after our acquisition we
have not lost any of our earlier custo­mers. Manpower retention within Netsol
is also a lot better now.

One-to-one

Sudhir Sarma, CEO, Network Solutions

You have indicated that manpower retention is better now. Does that mean
attrition has reduced considerably?

When one talks of attri­tion, we could segregate emplo­yees into two
groups-those who are here for less than two years, and those who are here for
longer. Invariably people who are here for less than two years continue to move
out. That is also because they are not here to make a career.

The other group of people who are with us for longer than two years, are the
ones that make a big difference. I must say that attrition in this group has
reduced consi­dera­bly post acquisition.

Given that attrition has reduced, have employee expectations increased?
Also since you are an IBM company, do employees look forward to better pay
packets?

Actually, yes. Employee ex­pec­tations have indeed gone up. The IBM factor
prompts them to believe that they can look forward to much higher salaries. But
the reality is that while people's expecta­tion have gone up, business has
not dramatically increased.

We are therefore trying to communicate to our emplo­yees that salary is not
the only important factor. We are now a global company and people here can look
forward to opportunities of working overseas and also get to learn a lot.

Besides manpower reten­tion, what other benefits has Netsol got post this
acquisition?

Our single-point focus during the entire acquisition exer­cise was to
retain our exis­ting customers. Having attai­ned that now, we have also
realized that a number of cus­­to­mer accounts of IBM and Netsol are actually
com­plementary to each other. We see very little overlap.

What this means is that there is a huge opportunity for us in terms of
business and targeting new customers. Another advantage that Net­sol has got
post-acquisition is that we are part of a global company. We now have the
capability of being able to support a number of other Indian companies who would
want to begin operations outside of India. We have access to global clients and
we could help Indian compa­nies to set up operations across different
geographies of the world.

How will you take advan­tage of the new business opportunities available
to you now?

While the opportunity to do business and grow is huge, the infrastructure
cost, as well as people costs, have in­creased. So companies, ours included,
need to focus on developing intellectual pro­perty tools that can be scaled up
easily. In order to build these tools a lot of money is needed. Being associated
with IBM places us in a good position to do that.

The need of the hour today is to work on asset-led models where tools as well
as IPR can be provided as a service to customers. There are not many players who
are working with this model. So we have a big differen­tiating factor that we
can offer to our customers.

Do you think that the growth rate of Netsol has increased after its
associa­tion with IBM?

Actually it is very early to say that now, as far as our topline growth is
concerned. After all it is just one quarter that we have passed. Probably by the
end of the year we will be in a better position to make a statement. But I am
very sure that there has been no dip in our growth post acquisition.

What is your agenda for 2006? Would you be focu­sing more on the Indian
or the global market?

We would still continue to focus on the Indian market, as we are not very
concerned about global growth now. Given that we are a global company, many of
our people would get enough oppor­tunities to work overseas.

We want to go slow in the first year, understand things, and then see how
best to change our strategies.

This fiscal, we would in­crease our focus on the service business and grow
in that space. We have already invested in IPR and tools required for that and
need to strategize on how best we can take them to market.

Using the strengths of both IBM and Netsol, we would be looking to grow
faster than the market and the next six to eight months would be very important
for us.

Acquisition seems to have brought in a lot of benefits for you. Would you
there­fore say that inorganic growth is the best way out for companies to
expand?

Let's face it, a lot of large pla­yers are in a selling mode now and are
looking at some sort of consolidation. This means that acquisitions and mergers
would continue. Yes, smaller companies will still need to build enough value to
get there.

As far as Netsol is con­cerned, we realized that we needed to grow and
expand. When we looked at the op­tions on hand, we conclu­ded that venture
capital would not work for us, since most VCs come with a specific interest to
exit. The option of an IPO would also not work, since the stock market is not
really very excited about companies like ours who specialize in differen­t
areas.

The other option we had was inorganic growth. So we decided to take the acqui­sition
path. With IBM, even post acquisition we are still able to do what we did be­fore.
In fact, as a global comp­any we can do much more now.

Asim Raina and Subbalakshmi BM in Bangalore