FACE VALUE --- How not to spend it!
Why parsimony is good for Azim Premji,
the boss of Wipro and India’s richest man.
JAPAN’S CAPTAINS OF INDUSTRY slide anonymously through the Tokyo traffic in chauffeured black limousines. America’s bosses hurtle importantly about in powerful Mercedes, Ferraris and BMW5. Azim Premji, the chief executive of Wipro, an Indian technology company, navigates the murderous traffic in angalore, his company’s home city, in an ancient Ford Escort. The car is so decrepit that Mr Premji has had to seek assurances from Ford that the company will continue to service it.
Mr Premji’s old banger says much about the man who has helped Wipro fight its way to the front of India’s IT-export boom. Wipro is one of the country’s biggest, fastest-growing and most valuable information technology firms. Since 2000, Mr Premji has tripled his firm’s profits, to $230 m, and more than doubled sales, to $1.2 billion. On a good day in the stock-market, the 84% of Wipro that Mr Premji owns is worth $1.2 billion. If any of this has gone to his head, however, Mr Premji hides it well. Modest and quietly spoken, he seems vaguely embarrassed by his status as India’s richest man. His conspicuous under-consumption says something about the status of his company, too . Financially, Wipro goes from strength to strength. Politically, however, the firm may not be on quite such a sound footing.
The politics that have most alarmed Wipro’s shareholders this year have been taking place in America. The company specializes in taking IT work done in America (as well as in Britain and other rich countries) and moving it to low-cost India. Such“outsourcing” has boomed through America’s IT recession, and beyond. This has fed suspicions that the growth of Indian IT firms like Wipro, Infosys and Tata Consultancy Services (Tcs) has destroyed American jobs, creating a political back-lash. Those fears have faded as the job market in America has recovered, and as American firms have found ways to manage the politics of outsourcing more skillfully. Confirming this, on October 15th, 2004, Wipro reported strong results for its second quarter, including a 47% rise in sales over the same quarter in 2003, and a 67% increase in profits. Potentially, American and European firms could out source far more IT work to India, if the political climate permits it. Since March, Wipro’s shares have risen by about 50%.
Somewhat neglected in this happy analysis, however, is the politics at home. Indian politicians seek Mr Premji’s counsel. The local press celebrates him as a symbol of India’s emerging global competitiveness. But to Indian businessmen, Mr Premji belongs to a pampered and resented elite. Firms operating out of technology parks, such as the one Wipro occupies in Electronics City in the suburbs of Bangalore, pay no income taxes on export profits for ten years. More galling is the preferential treatment India’s high-tech businessmen get when land is dished out. Finding good land with clean title is one of the most challenging tasks a small business faces in India. Feted companies like Wipro get a free pass. Every state wants its own IT champions. Last month, the state of Tamil Nadu announced it was reserving 85 acres of land for Wipro on its planned “Knowledge Industry Township” on the outskirts of Chennai. Wipro, Infosys, TCS and others get the pick of whatever land the state government has to dole out.
Then there are the fat salaries that Wipro pays. by American standards, Mr Premji hardly feeds at the trough: he paid himself a wage of $48,000 last year, along with a commission (based on 0.1% of net profits) of $258,000 and perks worth $65,000. But by the standards of India, where the average annual income is $540, Wipro’s boss collects a king’s ransom. Vivek Paul, Wipro’s vice-chairman, is based in America and earns over $1m. As its share price has soared, Wipro’s local rival, Infosys, has created nearly 100 millionaires in dollar terms. Amid the grinding poverty along Bangalore’s Hosur Road, which leads to Electronics City, a BMW dealership has sprouted recently—and not everyone is choosing to stick with the old Ford Escort. New money is regarded with suspicion everywhere. Such is the gap between rich and poor in India, and the proximity in which they live, cheek by jowl, that the IT industry’s sudden fortunes could be explosive.
The unlucky many None of this is lost on the leaders of India’s IT boom. Their problem is how to build community relations and spread the wealth created by an industry which, under even the sunniest assumptions, is likely to employ no more than 4m of the country’s 1 billion inhabitants. Nandan Nilekani, the philanthropic head of Infosys, had been pouring his energies and his rupees into a local political initiative to improve governance and infrastructure in Bangalore. That came to an abrupt end in May, when voters booted out Mr Nilekani’s partner, S.M. Krishna, as chief minister of the state of Karnataka. Amar Bhide, a professor at Columbia University in New York, followed the campaign. Mr Krishna had put up posters all over the city, in English, heralding his state’s IT and biotech policy, recalls Mr Bhide. “Why would any Indian voter give a rat’s ass about Mr Krishna’s biotech policy?” wonders Mr Bhide. “For that matter, how many voters could read the English billboards?”
Mr Premji’s own good-works outlet is the Azim Premji Foundation, a not-for-profit organization which spends $5m of Mr. Premji’s money a year on improving India’s elementary education, concentrating at home in Karnataka. Dileep Ranjekar, the foundation’s chief executive, remembers that Mr Premji started thinking in 1998 about how to “leave a legacy”. They came up with a “laundry list” of three areas: health, nutrition and education. They chose education because it affected the other two on Mr Premji’s list as well. But $5m does not go far in a country in which more than doom people cannot read or write. That, ultimately, indicates the real scale of the political challenge facing India’s booming IT industry. And it dwarfs the problems Mr Premji has had to face in America.
The Economist Magazine
October 23rd, 2004. (pg. 68)
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