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Don’t overreact to US recession fears, says Deloitte chairman

Don’t overreact to US recession fears, says Deloitte chairman
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First Published: Mon, Jan 28 2008. 12 07 AM IST

Thinking long term: John P. Connolly, global chairman, Deloitte. (Photo: Madhu Kapparath/ Mint)
Thinking long term: John P. Connolly, global chairman, Deloitte. (Photo: Madhu Kapparath/ Mint)
Updated: Mon, Jan 28 2008. 12 07 AM IST
The India business of international audit, tax, consulting and financial advisory firm Deloitte Touche Tohmatsu is changing. The firm, among the world’s top four auditors, makes around 60% of its revenues in India from audit services today. Over the next three years, as Indian companies become more expansive and increase transactions around the world, this number will change to 60% business from consulting and financial advisory services, with 40% from audit, says John P. Connolly, global chairman of the firm. In an interview with Mint last week—he was part of a business delegation accompanying British Prime Minister Gordon Brown on his India visit—Connolly cautioned businesses from overreacting to fears of recession in the US and dwelled on the role India can play for global multinationals. Edited excerpts:
Are your clients asking you how to prepare for what looks like a recession in the US economy?
It is on the top of everyone’s agenda, but with different emphasis in different parts of the world. The reality is that in the UK, Europe and the US, people are not gloomy about the output, though they see some short-term issues. Many people believe that the US has a way of solving these problems internally, whether it is by economic stimulus or the confidence of the business people. That said, banks clearly are not going to be in the position for some time to lend in the way they did previously. That will impact business. Risk management is on top of everyone’s agenda. In the financial services sector, they are reviewing their processes in order. For those businesses that have a concern about their prosperity in the medium term, cost cutting and efficiency is right up there (among their priorities). At the same time, many businesses are still doing very well.
What advice are you giving your clients? (Deloitte’s top clients include the Royal Bank of Scotland Group Plc., Vodafone Group Plc. and BT Group Plc., formerly British Telecom.)
Thinking long term: John P. Connolly, global chairman, Deloitte. (Photo: Madhu Kapparath/ Mint)
Not to take extreme actions that might not be good for the medium and longer term. Many of the chief executives who are here from the UK would say that the fundamentals of their business have not changed and that they are doing well. Their share prices are inappropriately low and the market has not reacted extremely. They believe this will rectify itself over time.
How are you at Deloitte preparing for the recession, if at all?
In our core audit business, the big issue is not the economic challenge, but the reputational challenge. Consulting and corporate finance are the most impacted for two reasons. Corporate finance because of the M&A (mergers and acquisitions) slowdown; if our clients in the US, (and the) UK have fewer transactions, it impacts us. Consulting is impacted both favourably and unfavourably. Favourably, we can assist our clients in the risk management area. We can be adversely impacted because when companies decide to curtail their spend...they stop projects, and we do big projects in consulting. In the financial sector, we saw projects slowing down in October and November, but in December and January, there was an upward curve. We are starting to see a resumption of growth there.
Do you see India playing a larger role in business models around the world?
Our business models are changing and, for us, the impact of India is very interesting. For example, take Vodafone. We have seen them making a major investment in India. We, as a firm, have to be there to serve them with their requirements in India. Also, we act in India for many of the big houses like Tata Steel Ltd (who bought over Corus in the UK). Another client, Royal Bank of Scotland bought, with others, ABN-Amro, which is quite significant here. On the operations side, we won a big consulting engagement in the UK with an insurance company. In order to undertake that work, we do part of it in the UK and part of it in India because of the software work needed.
Can you map this for us from a tech services delivery capability point of view?
Globalization has brought more competitors and more threats. For many companies, the threat of new competitors in low-cost environments is real. Profitability and cost efficiency has become vital, as has customer relationship quality. So, people look to different models. A model that has been vastly adopted by many businesses is outsourcing and offshoring. India clearly has, over a relatively short period of time, demonstrated itself as being the expert in that area.
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First Published: Mon, Jan 28 2008. 12 07 AM IST