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'I see India as a real powerhouse'

At a time when investors are keeping off the technology sector, Ray Stata, noted US technology evangelist and venture capitalist, has launched Integrated Soft Tech Solutions Pvt Ltd in Madras.

Integrated Soft Tech Solutions Pvt Ltd is the first 100 per cent Ray Stata-promoted investment company. It was launched on September 27 and will focus on software services in networking, telecom and e-business for the complete development lifecycle.

For more than thirty years, Stata has been investing in many exciting start-up companies in the areas of networking and telecom.

He founded Analog Devices, one of the largest Integrated Circuits manufacturing companies in 1965. An alumnus of the Massachusetts Institute of Technology Ray co-founded the company with his former MIT roommate, Matthew Lorber EE and Richard Burwen (of Harvard).

He served as senior vice-president for marketing, sales and engineering at the company before assuming the position of president in 1971; he has been chairman and chief executive officer since 1973.

One of the advisors to Integrated Soft Tech Solutions is Dr Ashok Jhunjhunwala with whom Ray shares a long association. Prof Jhunjhunwala's presence has a lot to do with Ray deciding to start the company in Madras.

Shobha Warrier spoke with Ray Stata after he delivered a lecture on growth opportunities for Indian technology companies in Madras.

You spoke on 'Looking for a rainbow' today. When do you think will we see the rainbow?

Nobody knows for sure when it is going to come. But my view is that while two years is too long a time, one year is probably too short. I feel it will be sometime in this time-frame.

At a time when economic slowdown stares us in the face, you are in India to launch a company. Is it because the atmosphere is even worse in the US?

Not exactly. The idea for this company was conceived during better times. The launch of Integrated Soft Tech has nothing to do with the cycle.

But with respect to opportunities, this company depends upon the R&D budget of another company. Most high-technology companies have to invest and continue to invest to tide over the low cycle. The question is, where and how? And, if you are investing here (India), you can do it less expensively.

I know situations where companies (in America) are on a hiring freeze, they can't hire more people now. But you need people to get a job done and one of the ways to do that is to have an office in India.

Because of cheaper workforce?.

Yes.

Is the performance of the workforce up to your satisfaction?

It is quite variable. The number of people with experience and knowledge to do work at a high end is still relatively very low here. But at the same time there are companies where you can find high quality people. It is definitely advantageous if you can find such companies.

Do you think that a weak US economy couples with a nagging fear of war will see many (US) companies coming to India and setting up shop? Or will they look at India as a place for outsourcing?

Well, I can't talk on behalf of other companies, but there is no denying that there is talent here and it is less expensive.

When you are outsourcing, you are not actually hiring anybody, you are just spending money. If you have a project and you really need to get it done, you can outsource.

The expenditure is not much but it is critically important to see that you are getting the job done by not hiring anybody.

Yes, if you look at the experience of the last five or ten years, you see more and more companies coming here either to set up operations or to have an outsourcing partner. That trend is definitely not going to stop because the demographics in terms of availability of engineering talent in US is not enough. Of course, in the down cycle, people get laid off and they are available only temporarily.

But the insidious thing about these cycles is that students who go to universities with the hope of earning engineering degrees may think that it is not, after all a good idea to study engineering.

So, five years down the line, you will not have enough engineers in the US. That will cause a problem.

India has an advantage as far as manpower is concerned. Do you think quality-wise too the manpower here is good?

Oh, yes. Of course, there is a wide spectrum like in many other countries.

The engineers who graduate from the IITs (Indian Institute of Technology) and many other universities are quite competent, smart well-educated and hard working.

In future, work will flow to India as opposed to Indians migrating to the US. I see India as a real powerhouse, a 'design house'.

Do you feel once more and more Chinese master the English language, they may overtake India in the IT field too?

Yes, they have this enormous handicap of language now.

Number two, they haven't had as long a record of relationships with US companies as their Indian counterparts. If you compare the number of brilliant Chinese graduates going to the US for higher education, the percentage is much smaller.

There are many Indian entrepreneurs and managers in the US, and they as well as the companies that they are dealing with are comfortable

So, at present it is 'advantage India'.

You have been a venture capitalist for more than three decades. What did you look for in a company earlier, and what do you look for now when the economy is down?

Well, it is the same thing during the boom time and the lean time. The only thing that changes a little bit in the down cycle versus the up cycle.

In the up cycles, you invest in companies that you never expected to have a viable product. If you are comfortable with the company, you can go all the way -- start the product, sell the product and eventually go public.

Of course, the other thing is, foolish investments are often made when money is cheap. But now the criterion has tightened up.

However, while making a selection it finally comes down to the quality of idea, quality of the people, the size of the market, the competition, and the standard and strategic issues in selecting.

These issues have not changed and the fundamentals are same both here and the US. Only thing is, you look at it from a different lens.

What is the difference?

It is much more difficult for Indian companies to compete in the US market. You can have very good engineers who can come with a great product idea but if they are not living in the market, it is difficult for them to succeed.

While Integrated SoftTech is going to be in India the products are for the US market.

Here a lot depends on the customer. The customer is helping to decide the product and the market. And, there are few other Indian companies who develop their products here but markets them in the US.

You need an office where your market is, not only to sell the product but to get insights into what products to develop.

You said in your lecture that small companies are more innovative. What could be the reason for this?

There are a number of factors that contribute to their innovativeness.

There is a book called The Innovator's dilemma by a Harvard professor.

He has studied and documented the difficulties that the established successful companies have in investing in new areas.

If you are already in a successful business and have an appropriate idea you may wonder why you should do something different. So, typically successful companies do not go after aggressive new emerging opportunities.

Number two, there is time-consuming bureaucracy and inflexibility in the larger companies so that their agility is affected.

In these new markets, you have to be able to move and change. This is better done by small groups of young people whose very survival depends on their being innovative.

Has age got anything to do with innovativeness in business?

You can't use me as an example! (Laughs) I think I was adventurous when I was young, and I am adventurous when I am old too. I don't know whether it has anything to do with age. I think some people have greater propensity to take risks, and they it (risks) when they are young and old.

Yes, it takes a lot of energy and focus to be innovative and adventurous. Typically, younger people are more ready to make that kind of commitment.

But when you are older you may ask, 'why should I want to kill myself at this point when I have other priorities in life?' That is why innovative entrepreneurs come from the younger age group.

Has there been a paradigm shift among the US companies as a result of this economic gloom?

We have sustained a reasonably good economy for the last several years. The consumers have been buying things.

Yes, there is a mood shift as a result of this disaster (the prevailing economic slowdown). And, nobody knows whether people are going to recover their enthusiasm or optimism as consumers, or whether they are going to stay depressed. Nobody knows that yet. Personally, I don't feel this will remain for long. May be a few months, not more than that. After that, business will move and people will get on with their lives.

You have been in business for nearly four decades. Have you seen anything like this before?

This is the largest in all the 35 years of my life as a businessman. I saw the peak and the lowest point also. There is no question about that as far as the semi-conductor industry is concerned.

Yes, this is the biggest cycle. I think it has mostly to do with what happened in the communication industry because that is the driver for semi conductors.

This cycle is a complicated story, which people are still analyzing. A lot of factors came together to support an unusual boom and that was understandable. Admittedly, this is the lowest phase that I have seen in my life.

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