Reeling under debt and other macro concerns, world economy is going through turbulent times. However, this is something to cheer up the Indian IT industry. In an interview to CNBC-TV18, Vineet Nayar, Vice Chairman and CEO of HCL Technologies said that bad macro-economic condition in developed world is good for Indian IT industry.
Confident to stay afloat in a tumbling economy, HCL Technologies is seeing robust demand the US and Europe. Nayar reasoned that the customers have realised that economy will remain weak and in such a condition outsourcing goes up. He said that local vendors have lost market share to global players and this will see churn of deals within existing vendors. Going ahead, the company is aiming to hike market share with investments and innovation, without sacrificing margins. Below is the verbatim transcript of his interview with Udayan Mukherjee of CNBC-TV18. Also watch the accompanying videos. Q: How is the demand backdrop as you see it because there has been a lot of commentary all around on things slowing down a bit, refuted in part by some of your peers but are you seeing robust demand from US and Europe? A: The answer is yes. Let me give you the reason. The macro economic indicators are not very good and that has been true for the last couple of years. The customers are realising that is the truth which will remain for the next couple of years. Therefore they are moving in two directions. Direction one, is to reduce their cost of operations. Direction two, is to transform their business operations so that on a structural basis they can deliver their services to their customers at a lower cost. Therefore, that is driving total IT outsourcing deals in a way which we have not seen before. It is driving transformation deals when people have their capital to re-invest in their business. For example, retail banks are their cost income ratios are amongst the lowest in the world, they have no choice but to invest in back office engine so that the cost income ratios go up. That cannot be done by outsourcing that has to be done by a structural shift. Also Read: IT sector upbeat despite visa misuse controversy Same is with the pharma companies which are coming under significant cost pressures. On the cost of medical care and therefore they have to do a structural investment in reducing the cost of benefits they deliver to their customers, same is to the entertainment and telecom companies. So the macro economic indicators being bad is actually a driver for growth of both outsourcing to drive lower cost and drive in transformation. Therefore what you saw over the last few quarters was deals are shifting. There is a lot of churn in the market. So it is moving away from existing vendors who are not able to meet the cost targets or have the transformation ideas to be able to help the companies so the churn is high. Therefore, when you see TPI index or any of the reports coming in they say the following two things. Number one, the overall IT growth will be flattish for some period of time and I agree. However, the deals will come in the market and they will be a churn within existing vendors. It will go to more innovative vendors who will solve customer problems on cost and transformation. So the deal flow is good. Q: That is an interesting point this churn that you are talking about. In the last two quarters have you seen market shares shifting around then between the top 4 or 5 players? A: I think there is. If you look at the top, the last three years and then last few quarters there are two mega trends which we see in the market share change. First is, the local vendors who are not very big, have significantly lost market share both to large global players and to Indian IT service providers and that trend is huge. The second is, the global IT players and some of the Indian players who have not been able to keep track of the new emerging trends or the new demands of the customers are also loosing market share to a more innovative global and Indian IT service players. So, you are right in terms of the overall IT budgets are not increasing. Therefore if you quote the top five Indian and the top five global players together you will not see spectacular growth. However, when you see the churn in market share you will see some very interesting indicators of what is going to happen in the future. Q: What is the situation in Europe? I take your point about the macro indicators not reflecting on IT service growth because of the need to downsize or reduce cost but sometimes when the macro begins to look very weak then people go on freeze mode as we saw a couple of years backDiscover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
