Coming into its own: Nadar says HCL has the right model to make it big

No, HCL Technologies isn't the first Indian it company that comes to mind when there is talk of $10 billion in revenues. Nor is it the second. Or third or fourth. Fifth? Hmmmmm.... With revenues of Rs 3,150.5 crore for the nine-months ended March 31, 2006 (the company's financial year ends on June 30), or Rs 4,135.5 crore for the 12-month period ended March 31, HCL Tech. trails TCS (Rs 13,252.15 crore), Infosys (Rs 9,521 crore), Wipro (Rs 10,626 crore) and Satyam (Rs 4,793 crore) in the pecking order of the Indian it industry. Why, it isn't even a billion dollar company, having just reached a position where it can claim to be one in terms of run-rate (its revenues for the January-March quarter were $252 million or Rs 1,134 crore). Yet, Shiv Nadar, Chairman and CEO, and Vineet Nayar, President, HCL Technologies, declaim that while they are not saying their company is a contender (in the race to $10 billion), they believe they have the formula for it firms to touch $10 billion in revenues. Which would definitely make the company a dark horse of sorts in the race itself.

Lending credence to that claim is Nayar's habitual demeanour, a mix of earnestness, energy, and articulate strategic brilliance, and Nadar's standing as a visionary in the Indian it space (the man kick-started the Indian hardware industry when he founded HCL Ltd in 1976). "In the next five years, growth will come from a different route than the one that has been adopted during the past five years," says Nadar. "Thus far, the Indian it industry has been driven by external triggers," adds Nayar. "It started with offshoring in the mid-1990s; it was the y2k trigger in 2000; and over the past two to three years it has been led by the need of clients to cut costs." "Now," says Nayar, "it's time players found their (own) reasons for existence."

HCL Technologies has found its own reasons, shunned the cost-arbitrage-play, and, in the process, identified a route to future growth. Nadar has hired top-notch consultants to strategise the company's makeover; he is personally supervising a big-budget marketing campaign that seeks to position the company as a total solutions provider (exploiting synergies with HCL Infosystems, a hardware-focussed company that is run by HCL Ltd co-founder Ajai Chowdhry); and he has identified "co-sourcing, not out-sourcing" as the way forward. The term includes everything from applications development to business process outsourcing. Indeed, HCL Technologies' new model will see 34 per cent of its revenues come from custom applications (development and maintenance), 18 per cent from package implementation, 24 per cent from R&D and technology services, 11 per cent from remote infrastructure management, and 13 per cent from business process outsourcing. That should help the company grow faster, explains Nayar, pointing out that while the applications market is expected to grow at the rate of 20 per cent over the next two years, the infrastructure management one will grow by 100 per cent, and the package implementation one by 70 per cent.

Analysts agree that Indian it industry needs to build on its competence now instead of relying on cost benefits. "Indian companies need to reposition themselves as solutions partners rather than being just offshoring partners," says Joydeep Datta Gupta, Director, PricewaterhouseCoopers HCL Tech. has also worked out its own formula for big deals. The company, says Nayar, will stay away from big deals where it has to play bridesmaid to large multinational competitors. "Rather than being part of billion-dollar-plus deals where there is little flexibility and scope to work, we would prefer to be in less-than-billion-dollar deals where we can play independently." The new formula, he claims, has helped HCL bag large deals such as the one with UK-based Dixons Group International ($300 million or Rs 1,350 crore) and Deutsche Bank ($100 million, Rs 450 crore).

Finding oneself: Nayar says HCL has already done so

Over the next few years, HCL Tech. also wants to focus on products (Nadar and Nayar's aggressive stance about the imperatives of having products in the company's portfolio suggests that they could consider acquiring product companies). "To catapult into the big league, a focus on products and associated services built around products is a must," says Nadar. And Nayar claims that for an IT services firm to reach revenues of $10 billion, 40 per cent of its revenues needs to come from products and associated services.

The blueprint created by Messrs Nadar and Nayar is a contrarian one. It looks beyond the present: the industry is growing at a rate in excess of 30 per cent; the world recognises the merit of the global delivery model; and India's it exports are set to grow to around $60 billion or Rs 2,70,000 crore by 2010. It is also in keeping with Nadar's belief that today the challenges ahead of Indian it firms outnumber the opportunities they can tap. "Theoretically, we have a model that can catapult us into a leading global player," sums up Nayar. "Now we need to execute our plans."