PAC spent time last week speaking with HCL’s senior management about its business and prospects, particularly in Europe.
HCL is one of the biggest India-based IT services providers, but some way behind the “big four” (including Cognizant). What’s notable is that it’s taking share: the fastest growing IT service provider of Europe’s Top 30 over the last two years. Notably, however, its competitive wins are generally against Western service providers, not its Indian peers.
PAC believes HCL’s growth is due to a number of factors, external and internal. The key external factor is big companies’ growing desire for multi-sourcing, selecting different providers based on their perceived strengths, to operate in service ‘towers’ such as desktop, infrastructure or applications management. This has been coupled with the expiry of a number of big deals signed in the last big wave of outsourcing, often with a single incumbent supplier.
So business is there to be won. But how has HCL landed the contracts it has? Looking at internal factors, HCL has a number of things going for it, including:
- the company has cleverly exploited the management philosophies of CEO Vineet Nayar, encapsulated in his book “Employees First, Customers Second,” through the business media thus bringing the company to a wider audience and enhancing its brand: a vital task in such a fiercely competitive market;
- the company has acknowledged strength in infrastructure-related services, not really the typical field of success of Indian providers. Here HCL can be seen clearly as the leader among the Indian providers;
- HCL’s Axon acquisition gave it a head start in enterprise applications services in Europe, giving it access to a larger pool (relative to its closest competitors) of business process/change management consultants as well as in-depth expertise in SAP implementation. It has built on that, creating an Oracle practice now up to half the size of the SAP one, and a Microsoft practice particularly in CRM.
So the question for HCL now becomes how to drive further growth even as the economic situation in Europe remains uncertain.
In PAC’s view, HCL’s best option is to strengthen its presence for Enterprise Apps-related services in Continental Europe. Its primary successes to date have been in the UK, followed by the Nordics, or with very multinational customers. We see clear potential for HCL in Germany and other continental countries particularly those where SAP is strongest – but the company will have to build critical mass of native speakers and an in-country capability, not rely too heavily on offshore delivery. It must also be ready to counter the new-found threat posed by Infosys’ acquisition of Lodestone.
There should also be considerable scope for up-sell and cross-sell from its success in selling infrastructure services into other areas with its customers: offering innovative, process-led solutions. HCL shared with us examples of its doing that already. For the coming years, PAC expects HCL to move further in the direction of providing solutions based on its own IP or based on packaged apps.
In a nutshell, we expect that HCL’s success will continue for the next 2-3 years and beyond.