BPOs (business process outsourcing), we believe, are now commoditized and we’re not interested. The revenue per employee is very low. KPOs bring in fairly sophisticated talent to address basic outsourcing issues. The third area of interest, which we believe is fairly new, is the product area. We believe that product innovation is taking place and will accelerate over a period of time, but is still in its infancy. Those opportunities will predominantly be in the software and mobile space. Less so, probably, in the core hardware space because India still lacks manufacturing capabilities.
Semiconductor deals naturally gravitate towards China. But, I think we’ll see a lot of opportunities in wireless infrastructure and software. The fourth area, where we haven’t done anything yet, is related to infrastructure. This is away from our core sectors, but interesting because of the growth of the economy here.
How will you spread deals among these four sectors? How will the portfolio mix change in a few years?
We’re investing in the first three sectors mentioned earlier. Most of it has been in the first two, consumer Internet and second-generation services companies. We have been looking at the third area and are now starting to look at the fourth. The portfolio mix changes as the economies change. When I joined the firm 19 years ago, we had a very vibrant retail and pharma practice in the US. We haven’t done that in the last 10 years. But India opens up some interesting opportunities – healthcare and even healthcare and pharma outsourcing. We’ll look at them on an opportunistic basis, but for that we’ll have to acquire relevant talent. It’s hard to project what the portfolio is going to look like in future.
If you look at our global portfolio five years ago, the ratio was very different. Today, there are quite a few consumer Internet companies, less of telecom infrastructure equipment companies. But that is changing now. Telco infrastructure in US and Europe is getting very stressed and is in need of upgrades. So we’re investing more in telco infrastructure companies now than we did five years ago. Software is a little different today. Five years ago, we had a lot of application software. Now, the real opportunity is in the small and medium enterprise business.
Several venture capital investors, including Norwest, have looked at the product space here for a while. How promising is it?