ValueLabs Confident of Growth Despite Slowdown

TMCnet, January 06, 2009
By Rajani Baburajan
TMCnet Contributing Editor

The interview has been published on www.tmcnet.com. You can also read the interview at the attached http://it.tmcnet.com/topics/it/articles/48104-valuelabs-confident-growth-despite-slowdown.htm.

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It’s a difficult time for political leaders as well as businesses. Considering the gravity of the current economic situation, U.S. President-elect Barack Obama and congressional leaders urged for a $775 billion economic-stimulus plan, the largest such package ever announced in the country. In addition, businesses across the world have been struggling to achieve balance between their earning and spending amidst declining business activities.

In a series of interviews, integrated media company Technology Marketing Corporation (TMC) analyzes the impact of the economic slowdown on different companies in the information and communication technology (ICT) sector. ValueLabs, a global IT services company offering technology consulting, software product development, testing, remote infrastructure management and knowledge process outsourcing services, reveals it has been able to weather the storm so far.
TMC caught up with ValueLabs CEO Arjun Rao to discuss the various aspects of the global economic slowdown and its impact on the industry.

TMC: How has the economic slowdown affected the performance of your company?
AR: So far, we have experienced minimal effects of the global economic recession. Our growth for this financial is expected to be between 40percent and 45percent, which is in line with our expectations. This has not surprised us because we had anticipated this slowdown for over 3 years now.  The current crisis – born out of the housing bubble and sub prime crisis – is second global crisis after the dotcom bubble burst in late 1990s. What we are seeing today is the unwinding of 10 years or more of excesses committed in the US financial system.

As an Indian IT outsourcing player, it was critical that we anticipated this and geared up for this. We have done that successfully so far by spreading geographical risk, staying highly cost efficient, focusing on the value proposition we offer our clients, de-risking away from the BFSI sector.

TMC: What are the new corporate strategies adopted by your company to deal with the current scenario?
AR: We have successfully diversified our business across geographies and industries, and have been in a state of preparedness by being highly cost efficient.

Geography based: We are primarily tapping markets such as West Asia and Europe for expanding our business. We recently set up a sales office in Dubai’s premier information technology cluster, Dubai Internet City (DIC). This office caters to the emerging markets in the region extending from the West Asia to the Indian subcontinent and Africa to the CIS countries.

In addition, we are also looking to expand our footprint in Europe by leveraging our strong presence in the UK. We have set up a sales office in London so as to improve our presence there. We are looking at forming partnerships and building visibility among middle-tier companies in the region by committing substantial investments, in terms of resources and finances.

New Service offerings:ValueLabs has also expanded its service offerings to cater to a wider market. We believe there are going to be certain essential services that will continue to do well even in a slowdown. The infrastructure maintenance needs for companies in the West will continue to remain high, and many of them might find it beneficial to outsource these services to India. Accordingly, we have increased our focus in this area and have ventured into the areas of packaged IT solutions and Remote Infrastructure Management, while keeping our key competence intact.

TMC: What is the impact on dollar rate fluctuation and how are you solving this issue?
AR: We have a 12-month forward cover hedging strategy wherein we hedge substantial percentage of our revenue to overcome problems related to currency fluctuations. We have complete visibility on the revenues that would be generated for the forthcoming 12-month period and plan our spending accordingly. We prepare our annual expenses budget plan based on the actual revenue in Indian Rupees (INR) we would get through the forward covers. As we know the net INR revenue we get 12 months later dollar rate fluctuation doesn’t impact us much.

The flip side about our hedging strategy is that at times we might be unable to take full advantage of huge dollar fluctuations when there is positive swing of dollar. However, we really don’t bother about such eventualities as our focus is on ensuring revenue stability rather than marginal increase in profitability.

TMC: Will you be focusing more on India and China markets in order to beat slowdown?
AR: Over the past three years, we have built up considerable presence in India and have a few strategic clients in the travel, logistics and entertainment sectors. We believe we have considerable expertise as a technology provider to service clients in the telecom, travel, media and entertainment sectors in the domestic market. We have a dedicated sales team that caters to the Indian market and pursues opportunities for outsourcing. But we are not looking at India purely as a fallback strategy to offset losses in other regions. As of now, we have no plans for foraying into the Chinese market.

TMC: What are the most severe problems faced by your important clients? Are these problems affecting your business?
AR: Most companies are initiating cost-cutting measures across the board, in anticipation of a protracted economic slowdown. Consumers everywhere are focusing on essentials and curbing ‘luxury’ spending; clients are modifying their product mix/service offering to cater to this change. We have also noticed that clients have started questioning the value of every Dollar spent; which puts us, as their offshore service provider, on a strong footing.

TMC: Do you offer any new solutions/suggestions to help your clients manage the situation wisely?
AR: We have a research team in house, which tracks our customers business and also keeps track of industry trends. We keep our customers updated on a regular basis on our views on their business. We also offer them cost savings possibilities offering new custom solutions. For example, we have replaced one of our customers’ outsourced products with an in-built custom solution resulting in upwards of $2 million year-on-year savings for them.

We have expanded our service mix to help clients leverage the off-shoring advantage further. Service areas that have generated considerable interest amongst our clients are remote infrastructure management and consulting, to study current operations and create an off-shoring roadmap.

TMC: Which are the geographies that will show positive growth in coming quarters?
AR: We believe West Asia, UK, Europe, India and Australia will show positive growth for ValueLabs in the coming quarters. We believe our US business, which constitutes about 60percent of our revenues, will continue to grow as our engagements with some of our largest clients are long-term and strategic in nature (above 5+ years).

TMC: Which are the most affected regions in the world?
AR: While the current economic crisis is truly global in its scale we think Europe and US will bear the brunt of this slowdown.

TMC: Which are the main business areas in ValueLabs that will continue to grow during the slowdown?
AR: We believe we will continue to grow in all our practice areas such as offshore product development, QA / testing, KPO and remote infrastructure management services.

Our confidence springs from the unique outsourcing model we have fashioned over the past 11 years. Unlike most software firms, we do not execute short-term fixed price projects or provide resources on hire to work at the client’s locations, as is the case with staff augmentation projects.
Instead, we have fashioned a highly effective onsite-offshore delivery model, known as Extended Team Model (ETM). As part of this, we build teams in India that are dedicated for clients and act as their “Extended Teams”. These “Extended Teams” share the vision of clients, invest time and effort, and provide value for clients year-on-year.

As these engagements are long-term in nature, the “Extended Teams” have greater insight into client’s vision and business, understand their requirements better and execute work more efficiently and effectively because of the knowledge that is built up over the years.

In short “Extended Teams” help clients by providing them the mindshare of a captive center with the cost advantages of an outsourced partner. On the other hand, ETM also ensures that ValueLabs has complete visibility on the cash flows for the impending period. Today, 95percent of our business gets transacted under this model.

We believe ValueLabs is better placed to exploit the opportunities because of the ETM framework. By executing client work offshore in the most effective manner we ensure major reduction in clients’ overhead costs, which is particularly useful in these days of high inflation.

TMC: What are your hiring strategies in India and global markets?
AR: Despite the current economic downturn we are confident of growing well above the growth projected for the Industry in 2009.

We continue to hire both freshers and laterals, more in a just-in-time strategy than for creating a bench. We have focused on being extremely efficient as part of our hiring process and have practiced just-in-time hiring even before the term became fashionable.

We will stick to our usual plan of hiring freshers from tier-2 colleges from AP and rest of India. As recruitment has become easier due to availability of good resources, we believe we would be able to achieve the targets for recruitment set for this year.