The subprime credit crisis in the US and the resultant slowdown in the world’s largest economy has set off fears in the Indian tech services industry of a slowdown in demand for their offerings. Larger financial institutions such as Citigroup Inc. and Merrill Lynch and Co. have taken the brunt of the crisis, but Wells Fargo and Co., that country’s fifth largest bank by assets, too will see “the belt tighten” in tech spending this year, says Suren K. Gupta, its executive vice-president and group chief investment officer of home and consumer finance group.
In an interview at Mumbai, where he attended an industry event last week, Gupta gives the view of a technology officer from an industry that accounts for almost half the Indian tech services industry’s revenues. Edited exceprts:
How do you see the subprime-related credit crisis affecting Wells Fargo and its technology budget this year?
On a relative scale, we have been less affected in the subprime crisis and are better positioned compared to our competitors. We are taking a re-look at our offshoring strategy. In terms of pure investments in technology, we may see a dip in spends compared to our earlier plan, but it could (still) be higher than 2007.
Spreading arms: Wells Fargo and Co.’s executive vice-president and group chief investment officer of home and consumer finance group Suren K. Gupta.
The choice is to manage our costs. We are going to leverage our operations in India in building new technology; we have been working with Indian vendors for about a decade now. We do lot of database work development and are now looking at doing 24x7 maintenance work, which is a challenge.
Our centre in India, which is part of our extended organization, is 12 months old and we have about 300 people of the total of 6,500 worldwide. We are hoping to get to about 500-600 by the end of this year.
What prompted you to set up your own captive centre in India despite having relationships with many Indian vendors?
Key driver was having access to talent. We have actually come to a point where finding good talent is becoming a challenge in the US. India has a talent pool which is well educated. Despite having a direct presence, we will continue to have relationships with partners such as Infosys Technologies, Wipro, Cognizant and HeadStrong among others.
How big is your IT budget and what’s been the annual growth?
Our IT budget is in excess of a billion dollars and has been growing at 5-7% annually. Technology is a strategic advantage for us and we will make investments based on the strategic outlook and the areas we need to focus on. Our goal is to stay flat (with tech spending) or come down slightly.
Does that mean more work will be sent offshore to India?
There may be. We are looking at leveraging our operations in Hyderabad to move maintenance work that was done in-house in the US and leverage our partners here. We will be investing more in setting up centres of excellence.
Would you be considering rationalization of vendors in view of the subprime crisis?
We started rationalizing of vendors early last year and our strategy was driven by subject matter expertise and price points. There were about 100 vendors earlier and we have 25 or so now.
Are your priorities in tech spends this year different in view of the credit crisis?
We are prioritizing our spends based on business (asking ourselves) where the biggest lift would be. Clearly, we have more projects than we want to fund this year. Our focus would be on creative sales systems to credit risk management systems and capital market systems. There is a whole plethora of areas and we would choose our initiatives based on the lift.
As a CIO (chief investment officer), what challenges do you face managing your spends in view of sub-prime crisis?
There is a fixed cost of running IT. In difficult times, managing to bring down the costs is always a challenge. It is easy for us to cut down on projects but not on the hardware and software that we have paid for and has fixed run rate. That’s a big challenge. This year there is a little tightening of belt. Project prioritization is a key factor. We did renegotiations last year, where we negotiated price points with our partners.
What challenges you see in running the India centre?
The biggest challenge we face is finding the right skill sets that are readily employable. The other challenge is to retain the talent. Attrition and cost arbitrage are other issues. The outsourcing industry took off taking advantage of the cost arbitrage.
The driver is still costs. As cost arbitrage shrinks and it will shrink because of competitive pressures including factors such as volatility in exchange rates, it will become difficult for partners to deal with the situation. Vendors are looking at global delivery model. Work needs not be done from India and we can always source from elsewhere. That is going to be an important factor for us.
In view of rising costs in India, are you exploring any other locations?
Not actively, but it is on our radar. We have just started here in India. We need to have our lessons learnt as it is the first location outside US.