"Netsol was my passion then and it continues to be my passion now"

IBM's acquisition of Bangalore-based Network Solutions last year was big
news and there were apprehensions that ran rife in the market as to what would
happen to the future of one of the biggest and most successful solution
providers in the business. But Sudhir Sarma says that his company's
acquisition by IBM was a well-planned move and indicates that post-acquisition,
Netsol still works and operates like before. He also feels that many early
apprehensions of the exercise have ceased to exist now.

He is now happy that the company has retained all of its customers
post-acquisition.

What would you say is the status of Netsol as a company
post the IBM acquisition? Have there been any drastic changes in the way the
company's operations are run now?

Post-acquisition, Netsol is a 100 percent subsidiary of IBM. We are a part
of IBM India and in fact the acquisition was done keeping in mind the Indian
market needs. As regards the running of the company, we have not seen any
dramatic changes in the way we operate now as compared to the way we did before.

Yes, we are an IBM company, but we still have a lot of
independence and are running our operations just like before. In fact, even
after our acquisition we have not lost any of our earlier customers. Manpower
retention within Netsol is also a lot better now.

Sudhir Sarma CEO, Network Solutions

You have indicated that manpower retention is better now.
Does that mean attrition has reduced considerably?

When one talks of attrition, we could segregate employees into two groups-those
who are here for less than two years, and those who are here for longer.
Invariably people who are here for less than two years continue to move out.
That is also because they are not here to make a

career.

The other group of people who are with us for longer than two
years, are the ones that make a big difference. I must say that attrition in
this group has reduced considerably post acquisition.

Lets us face it; whether it is Netsol or any other company,
attrition continues to happen. We are therefore not looking at any dramatic
change in that scenario, but I can certainly say that there has been a
considerable reduction now. 

Given that attrition has reduced, have employee
expectations increased? Also since you are an IBM company, do employees look
forward to better pay packets?

Actually, yes. Employee expectations have indeed gone up. The IBM factor
prompts them to believe that they can look forward to much higher salaries. But
the reality is that while people's expectation have gone up, business has not
dramatically increased.

We are therefore trying to communicate to our employees that
salary is not the only important factor. We are now a global company and people
here can look forward to opportunities of working overseas and also get to learn
a lot. We are trying to communicate this in the best possible way to our
employees and I must admit that this is a huge challenge for us.

Besides manpower retention, what other benefits has Netsol
got post this acquisition?

Let me start by saying that our single-point focus during the entire
acquisition exercise was to retain our existing customers. Having attained that
now, we have also realized that a number of customer accounts of IBM and Netsol
are actually complementary to each other. We see very little overlap.

What this means is that there is a huge opportunity for us in
terms of business and targeting new customers. Another advantage that Netsol has
got post-acquisition is that we are part of a global company. We now have the
capability of being able to support a number of other Indian companies

who would want to begin operations outside of India. We have access to global
clients and we could help Indian companies to set up operations across different
geographies of the world.

How will you take advantage of the new business
opportunities available to you now?

While the opportunity to do business and grow is huge, the infrastructure
cost, as well as people costs, have increased. So companies, ours included, need
to focus on developing intellectual property tools that can be scaled up easily.
In order to build these tools a lot of money is needed. Being associated with
IBM places us in a good position to do that.

The need of the hour today is to work on asset-led models
where tools as well as IPR can be provided as a service to customers. There are
not many players who are working with this model. So we have a big
differentiating factor that we can offer to our customers. Being associated with
IBM, we would be able to do it better.

Do you think that the growth rate of Netsol has increased
after its association with IBM?

Actually it is very early to say that now, as far as our topline growth is
concerned. After all it is just one quarter that we have passed. Probably by the
end of the year we will be in a better position to make a statement. But I am
very sure that there has been no dip in our growth post acquisition. All I can
say is that in the next few months we would come out with many more products,
all of which would impact our growth tremendously.

What is your agenda for 2006? Would you be focusing more
on the Indian or the global market?

We would still continue to focus on the Indian market, as we are not very
concerned about global growth now. Given that we are a global company,

many of our people would get enough opportunities to work overseas.

We want to go slow in the first year, understand things, and
then see how best to change our strategies. We still have to make our space and
synergy with IBM work so as to benefit both of us.

This fiscal, we would increase our focus on the service
business and grow in that space. We have already invested in IPR and tools
required for that and need to strategize on how best we can take them to market.

Using the strengths of both IBM and Netsol, we would be
looking to grow faster than the market and the next six to eight months would be
very important for us. We would also continue to build on our customer
relationship and therefore have the best of both worlds - business and
people-with us.

Acquisition seems to have brought in a lot of benefits for
you. Would you therefore say that inorganic growth is the best way out for
companies to expand?

Let's face it, a lot of large players are in a selling mode now and are
looking at some sort of consolidation. This means that acquisitions and mergers
would continue. Yes, smaller companies will still need to build enough value to
get there.

As far as Netsol is concerned, we realized that we needed to
grow and expand. When we looked at the options on hand, we concluded that
venture capital would not work for us, since most VCs come with a specific
interest to exit. The option of an IPO would also not work, since the stock
market is not really very excited about companies like ours who specialize in
different areas.

The other option we had was inorganic growth. So we decided
to take the acquisition path. With IBM, even post acquisition we are still able
to do what we did before. In fact, as a global company we can do much more now.
Yes, at this point we are still trying to understand IBM and also trying to work
out the best possible ways to leverage on the value of being associated with a
global company. 

Would you say that you are more relaxed now or is it still
a honeymoon period for both of you?

Yes, I am much more relaxed now. I do not have to bother about a lot of
things that I used to earlier. As far as our partnership with IBM goes, I would
say it is good. Yes, the honeymoon period is still on but a lot of apprehensions
that existed earlier have disappeared now. In fact, in the many customer
meetings that we have had post acquisition, we have learnt that customers are
happy with the exercise. In that sense therefore, ours was a well-planned
acquisition and we still hold on to our ideals that customer and people come
before anything else.

Usually we see that the promoter of an acquisition quits
the place after the exercise is complete. Are you also contemplating a similar
move?

Actually this is one of the questions I am most frequently asked. Let me
explain it in detail. Most people start a company, build it, then acquire
another and then restart again.

Unlike most of these I am not a typical businessman. Netsol
was my passion then and it continues to be my passion now. Even today when I
come to work, I feel the same as I did before the IBM factor came in. So at this
point in time I am not looking at moving out. Should any such situation arise in
future, I will probably think over it.

ASIM RAINA and SUBBALAKSHMI BM in Bangalore