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India's N.R. Narayana Murthy (Int'l Edition)

Asian Cover -- Entrepreneurs

INDIA'S N.R. NARAYANA MURTHY (int'l edition)

In late May, senior executives from the New York Stock Exchange and NASDAQ took a trip to Bangalore, India to scout for listings prospects among the area's dozens of software startups. At the top of everybody's list: Infosys Technologies Ltd. "I'm after companies like Infosys," says NASDAQ Asia-Pacific head Patrick Sutch. "It's an American company in India."

The flap over India's nuclear tests has deferred a U.S. listing of Infosys, but most analysts agree it's just a matter of time. The reason for the interest is the company's founder and chairman, N.R. Narayana Murthy. An intense, soft-spoken man, Murthy tops almost every Indian survey as the most highly esteemed manager in the country. If India had a few thousand more chief executives like Murthy, its slowing economy would get a major boost.

That's because Murthy knows how to combine Western-style management and accounting with the skills and drive of low-cost, highly educated Indian professionals. From a $1,000 investment in a company started in Murthy's apartment in Pune, Infosys has ballooned into a $70 million company with a market capitalization of nearly $745 million. Since it went public in 1993, the company's profits and sales have been growing nearly 70% a year.

Murthy, a 52-year-old electronics engineer and son of a village-school physics teacher, originally aspired to run a hydropower station. "I loved the idea of working in a green valley with clean air," he remembers. But he became fascinated with computers while studying at the elite Indian Institute of Technology in the 1960s. Murthy got a job in Paris developing software for Charles de Gaulle Airport's traffic-control system. A leftist, he saw what prosperity capitalist Europe enjoyed. Abandoning his socialist beliefs, he returned to India in 1974 to "create wealth rather than redistribute poverty."

From its start in 1981, Infosys has relied on overseas business, giving it a global perspective that most other Indian companies lack. Among the takers for the company's low-cost, high quality customized software were sport-shoe maker Reebok International Ltd. and retailer Nordstrom Inc. Today, Infosys employs 2,600 engineers, all working on tailoring software services for such major Western corporations as Digital Equipment Corp. and Nortel.

Murthy also knows how to keep talent. To compete with Silicon Valley, Infosys became the first Indian company to issue stock options to its employees. He's convinced that India's engineers will create a great industry for the subcontinent. "At the end of the day, when the world talks about software, it must talk of India," he says. And Infosys.Return to top



N.R. Naryana Murthy is the chairman of software services provider Infosys Technolgies Ltd., widely regarded as India's most admired and best-managed company. The unassuming, shy, 52-year-old electronics engineer and son of a village-school physics teacher took the entrepreneurial plunge in 1981 with six like-minded, Western-educated colleagues. They combined their meager $1,000 grubstake to create Infosys, now a software powerhouse in India. Today, Infosys employs 2,000 engineers, all working on customizing software services for major Western corporations like Digital and Northern Telecom, and has nine software development centers in India and 12 overseas offices, including Japan.

Murthy spoke to Business Week's Manjeet Kripalani at the company's sylvan headquarters in Bangalore and later, in Bombay. Here are excerpts from their conversations:Q: What drove you to start Infosys? A: Right from 1971, when I was in Paris, I knew that at some time or the other, I would create an enterprise. How far, how successful, I didn't know.

I used to be a leftist in those days, the halcyon days of socialism, the glory days of the Soviet Union. For those of us from developing countries, the fact that America refused to build a steel plant in India while the Soviet Union did made us glorify socialism. Also, it was in some sense an offshoot of anti-colonialism, because the colonizers were all those who had accepted capitalism in toto.

But I realized in Paris that even the worst communists believe that you have to work hard, there's a role for the private sector, and that the only solution to create wealth was to encourage more and more people to create wealth rather than redistribute poverty. I understood the only way India could improve was by creating wealth legally and ethically.

When I came back to India from Paris in 1975, I joined a nonprofit organization in Pune called Systems Research Institute. We applied operations research and systems theory to solving public systems problems. But I found that all our work ended up as reports that started gathering dust. Nobody looked at it seriously. I was disappointed, because I was a young man in a hurry to do something. I wanted to create something for myself. But I had to learn the basics of the creation of wealth, of the private sector.

So in 1977, I joined a company called Patni Computer Systems in Bombay, as head of their software division. It was a family-owned company whose son was from MIT, and it represented a U.S. company called Data General. We sold their computers, installed them, and also produced some software.

There, I discovered colleagues like myself -- all of us from middle-class backgrounds who understood each other and recognized our similar value systems and similar orientation in terms of our aspirations. We had mutually exclusive but collectively exhaustive skills. I knew the time had come. We all left Patni, and on July 7, 1981, we began Infosys. Our vision was to create a globally respectable company for, of, and by the professional. Software was one industry in India where professional competence could be leveraged. Q: India then was nowhere on the software map. What did you think you could do?A: Yes, the information technology opportunity in India was almost nonexistent. Infrastructure was nonexistent. So we had to be an export-oriented company. I knew the area of software, knew the market outside India, knew we had competence. I knew doing software development from India was difficult because the velocity of business was low and there was hardly any market in India. So we had to do it outside of India, had to develop software from clients outside. Right from the start, our emphasis was doing turnkey projects for foreign companies. Q: What were your frustrations?A: At the time, there was no infrastructure for the IT industry in India. Telephone lines were difficult, it took nine months to get a simple import license. We knew if things didn't change, we could not make this work. Our heart was in establishing a state-of-the-art factory in India, creating a lot of jobs, and making sure the name of India became acceptable in international circles. The way to enhance pride in your nation is not by keeping foreigners out or jingoism; [it] is working hard, showing integrity, and making sure we can produce something that is world-class. But we couldn't start our factory in India right away, and we were fumbling between 1981 and 1991.Q: What changed your fate?A: Liberalization in 1991. It was a godsend for us. If there is one shining example of India's economic liberalization, it is Infosys. From 1992, we just went up vertically in all our graphs. That happened because of five reasons. One, the velocity of decision making improved in the country. Second, equity financing became a viable financing option. Third, there was competition in the domestic market for human resources. Fourth, it was possible to get consultants from all over the world to help in improving quality, productivity, brand equity, etc. And most important, the infrastructure and communications improved.

I would say we were very, very lucky. But then, chance favors the prepared mind. We were preparing ourselves for this day for a long time, almost 11 years, and when it happened, we seized it with both hands.Q: What gave you the edge, the confidence?A: From early on, all of us had exposure to the West, we had seen how the society was and how the companies were, so it is very easy for us to appreciate customer orientation, quality, productivity, infrastructure. We had seen how companies there had come up because of competition, and we wanted to emulate some of these successful companies like Microsoft and Lotus. And we said if we want to be anything like them, we had to have a competitive and open mind-set.

Also, we had not much to lose -- in fairness to all the traditional industrialists, the difference between them and us was we had almost nothing to lose, and they have a lot to lose.Q: Did you get any encouragement from the Indian government?A: Oh yes. This is one industry where there has been very close cooperation between the Indian government and industry, a complete alignment of views that has led to this success. The government became a catalyst rather than a controller. It removed most the infrastructure bottlenecks. It realized that telecom was the key to software development, so it set up five or six earth stations all over India.

Prior to 1991, we had to make 10 to 15 trips to Delhi to get a license for $15 in business. Now, I can walk 10 yards across my office to the Software Technology Park set up by the government here, and get a license in half a day to import goods of up to $ 3 million.Q: What is your key asset?A: Every corporation must recognize its strategic resources and leverage those. For the software industry, our strategic resources are people. And an innovative mind-set. Our asset walks out in the evening, tired, and we know it is entirely our responsibility that this asset walks back in the morning bright, enthusiastic, and energetic. There is competition for talent, so we offer stock options to our employees in India and overseas. We want to retain people, create enough global currency for our youngsters so that the temptation to take the next flight out to [New York's] JFK [International Airport] is less. Q: What's India's advantage in the software industry?A: India has a large number of trained, quality professionals to produce high quality, world-class work. The best and the brightest in India opt for software development, unlike in the U.S. and Japan, where they head for the hardware industry. And price -- India is cost-competitive.

Indians are smart with mathematics. They got this way by not using calculators in their youth! Also, because India missed the Industrial Revolution, the intellectuals in the country had to use pure conceptualization as an instrument to enhance their intellectual power and experience, unlike in the West, where experimentation was possible. So, Indians were left to work in areas like chemistry, physics, mathematics. Q: Where does India stand in the software industry? Where does India really stand in the world?A: Outside of the U.S., Germany, and Israel, India is the fourth-largest in terms of software exports. In 1997-98, we exported $1.8 billion in software, and we are growing at 50% to 60% a year, and I believe we will continue to grow at this rate for the next three to four years. What is good about this industry is it produces quality jobs, disposable incomes, provides a challenging work environment and opportunity. This is one industry where India has a sustainable competitive advantage, and government should do all it can to encourage this industry so that we can become worthwhile players.Q: If you were minister in charge, what would you do?A: I would reduce, nay, eliminate any government intervention in the operation of software. In areas where government play is mandatory and necessary, I would enhance the velocity of decision-making, encourage Indian companies to go out and become external-oriented, create schemes to get good, physical infrastructure -- power, roads, hotels, airports, restaurants -- for attracting investments into the software field in India. Q: What are the challenges ahead?A: There are a lot of challenges. The Indian software industry needs to enhance its brand equity in the marketplace, we have to create multinationals employing best-in-class talent from all over the world. We have to attract global investors. We have to use acquisitions and mergers and grow nonorganically. At the end of the day, when people talk about software, they must talk about India. That's a long way off.Q: What really pushes you forward?A: What really drives me is to be able to do something that is world-class. Something of which I can be proud to say, "I'm an Indian." Return to top

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