See uptick in IT deals from Jan '10: HCL Tech

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See uptick in IT deals from Jan '10: HCL Tech

In an interview with CNBC-TV18, Vineet Nayar, CEO, HCL Technologies discussed the outlook for the Indian information technology (IT) sector. He said there was a dramatic reduction in total IT outsourcing deals signed as per the data monitor. However, he expected uptick in IT deals from January, 2010.

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Q: But that is the sense you're getting as far the industry is concerned, what about HCL Tech and I would like to link it once again to the sort of noises that we are hearing coming out from the US economy for instance. We have seen a phenomenal set of numbers from Goldman Sachs yesterday. We have seen Infosys reporting a fairly strong set of numbers in India of course disappointing on the guidance front. If I were to ask you about HCL Tech, what is the prognosis in terms of outlook at this point?

A: I'll take you back in history and then come back to the current. In 2005 when we started the transformational journey of HCL, we said there are couple of things which are very clear on our mind that the current business model will not sustain. The business model of high quality, low cost India advantage part of the IT, not full IT was the name of the game. In 2005 we found because we were not the leaders, we found that that business model will not sustain. So we said that if we can be ahead of curve of directly competing with IBM and Accentures of the world in the total IT outsourcing market we can actually bypass the so-called recession of the business model - a redoing of the business model and we ahead of the race in the new business model which was core sourcing, total IT outsourcing.

So therefore in my mind the business model is definitely collapsing - no value add, only cost arbitrage because the global majors have as much larger presence as there is for anybody in India. So that's a first model. The business model of global majors is also collapsing because they had these long-term contracts which I called 'trust me' contracts - zero transparency, very low flexibility. The customers in the recession wanted discounts, wanted more cooperation, more value add and they did not get it. So you have an environment today that the customer is hugely dissatisfied with their existing vendors - whoever they may be because of one reason or the other and that's a very interesting market space. So I am less worried about Goldman Sachs results or somebody else's results - I am very interested that this is the first time the CIO is dissatisfied with the existing vendors for right reasons or wrong reasons and it offers the unique opportunities for hungry managements and hungry companies.

Q: But there has been a lot of talk about this vendors switching, vendor consolidation but we really haven't seen it play out as much as the Indian CEOs have been talking about it. What is the sense that you are actually getting in terms of how soon we are actually going to see this?

A: One of the things we have done unique is in the last two years we have announced our deals by names and the question you need to ask with reference to Reader's Digest or AMD or Viacom etc, is who were they doing business with and why is it that suddenly they are doing with HCL. So there is your answer for vendors consolidation.

I believe a lot of churn is taking place in the market. So if you take the data monitored data actually it is very interesting data. This quarter when I said USD 2 billion happened, I am only talking about enterprise non-government buying. But if you take government buying, it was USD 4 billion in this quarter, so it was twice as much as the non-government.

Q: Is that's a strong vertical for you?

A: It is not a strong vertical for us but it is a very strong vertical for IBMs, Accentures and HPs of the world. Most of US government business actually goes to them. So you are not seeing that in their results but what is happening is the government market is behaving more localized, most of the buying is happening on a local basis whereas most non-government there is a significant amount of churning that's happening. So if you look at the results on a total basis, may be you don't see it but on the ground we are seeing a lot.