In my continuing quest for IT firms, I made another trip to Hyderabad, and met B Ramalinga Raju of Satyam, who some years later went to jail for cooking accounts and mismanaging the company. Tech Mahindra tried for years to take over the shell of Satyam, but the income tax department's absurd demands stalled it. The finance minister did not have the guts to bring the revenue department under control. This column was published in Business Standard of 20 May 2003.
INFORMATION TECHNOLOGY IN HYDERABAD
In January I wrote about Pramati Technologies, the Hyderabad firm that had designed router software and taken on big firms like BEA Weblogic, Oracle and IBM. I had a feeling that Hyderabad harboured other unusual firms, and I went looking for them with the help of Kapil Ramamurti of Spark Capital Partners and Sankaran Nandakumar of VNVision. Nandakumar has an interesting history; from TCS he went to Nagarjuna Fertilizers. Instead of just selling fertilizers to farmers, he visualized growing crops as a system, and asked himself how one could add value to it. For instance, it is stupid to apply all fertilizers together. Phosphatic fertilizers stimulate root growth, so they should be applied at the beginning. Nitrogenous fertilizers help leaf growth, so they should be applied once the plant begins to grow. Now he is applying this type of systems thinking to agribusinesses, high-tech firms and social service organizations – including Dalit groups and a women’s organization which has crossed 60.
The most impressive sight I saw was the Satyam campus. Located some 30 kilometers out of Hyderabad, this 120-acre campus breaks away from the arid western Andhra countryside. On entry it looks like a jungle. The half-a-dozen buildings get lost in the wilderness. The campus has a botanical garden, a nursery, a little zoo and an aviary. One building houses the restaurant, seminar rooms, and a gym with an outdoor swimming pool. Workers can carry their lunch out and sit around rustic round tables. Insiders like visitors to admire the solid timber of the tables and the gate; actually, they are made of cement. The workers can take their laptops and work outdoors, for the campus is equipped with bluetooth technology; even in the open air, a computer has wireless connection with nets, internal and worldwide.
B Rama Raju, one of the two brothers who started Satyam, is a remarkably relaxed man in these turbulent times. They started the company in 1989; at that time they were body-shopping for John Deere – they had set up a team to work within the John Deere plant. Once VSAT links arrived, it would have been far more economical if the team had been located in India; labour turnover would also have been lower. To persuade John Deere, Satyam moved the team to a location across the road from the plant; no one was allowed to cross the road. Convinced by the experiment, John Deere allowed the first offshore development to move to India.
According to Raju, the turning point for the Indian IT industry came with Y2K. The flawless transition to the next millennium created confidence in Indian firms, and built up relationships which kept the latter afloat in the hard times that followed. Indians have greater confidence in their own ability than clients do; Indians cannot say no, and take on tasks beyond their capacity because it would be impolite to refuse. That is where Y2K made a difference – it narrowed the gap between what Indians thought of themselves and what others did. Now clients are calling Indian firms, and asking them to take on end-to-end responsibility. Although newest and smallest of the Big Five, Satyam has built up relationships which assure it of a smooth path ahead.
I visited two specialist firms which are still feeling their way forward. Both have been set up by engineers who did well in the Silicon Valley, and who were lured back to Hyderabad. MosChip Semiconductor was set up in 1999 by four friends; three are in Hyderabad, while the fourth, an American, handles marketing in the US. It designs chips that control the connexion between PCs and other devices. Now that PCs are being used to play music and films, to make telephone calls and keep watch with digital cameras, there is a demand for new chips to manage the interface. MosChip designs the chips, gets them manufactured by a fabricator in Taiwan and sells them under its own name to equipment manufacturers. Most of the customers are in East Asia, where consumer electronics are a booming industry.
Its founder, Ram Reddy, graduated from IIT Madras in 1970, and then went to Wisconsin for an MSEE. He returned and worked on defence contracts at the IIT. That was the world of IBM 1600s and 360s, of data on thousands of punched cards, and of semiconductor chips with four gates (today they can have over 2 million). The first minicomputer, PDP micro, was made by DEC in 1970. The shift from mainframes to personal computers was just beginning; semiconductors were just about to break out of computers and enter consumer durables.
Reddy then went back to the States to do a Ph D. That was the time when semiconductors were beginning to be used in devices – calculators, watches etc. In 1977 he got an offer from AMI to make the world’s first DSP chip and took it. He worked on custom-designed chips for six years. He patented an algorithm for rounding off. Years passed like a blur. Early in the morning, his wife drove him to work; late in the evening she brought him back. Two hours for dinner and a chat, and it was time for bed.
No one gets rich by doing a job; everyone who was any good was setting up his own company in the 1980s. A customer from Florida was watching him; he told Reddy, “Tell me when you are going to leave,” and backed him when he did finally leave. He got contracts from Franklin, Western Digital, Microsoft amongst others. He set up three companies.
Finally Reddy decided to try out India, and returned in 1997. That was the time when all multinationals were recruiting in India; it was very difficult to attract or retain software engineers, especially if they had any experience of semiconductor design. Things have got easier after 2001. But even then, it is difficult to get talent of the right kind; Reddy is thinking of starting a school of chip design, and expects to have a pool of chip designers in five years’ time.
Srini Raju, chairman of ilabs, is a serial entrepreneur. A graduate from Regional Engineering College, Kurukshetra and MS from Utah, he worked with a consultancy in Palo Alto, California, before Ramalinga Raju lured him to come back and join Satyam, which was just taking off then; Srini helped run it till 1996. He also set up DBSS, which has now grown into Cognizant, the highly successful IT solutions provider. From 1997, Srini built up businesses centred on telecom, ERP and transactions processing, which were later merged into Satyam.
In 2000 he left Satyam and started ilabs, an incubator to create businesses based on intellectual property in life sciences, telecommunications and internet-based business services. He has already spun off six companies specializing in telecom clearing and settlement, WiFi, prepaid, and mobile business transactions. Srini is trying to prove that technologies – and not just solutions – for world markets can be produced in India. I think he will.