HCL's Nayar on What Ails India's IT Industry

Posted by: Steve Hamm on June 04

“You’re asking the wrong question.”

That was the response of Vineet Nayar, CEO of HCL Technologies, when I met with him this morning and told him what we’re hearing from other Indian CEOs about the state of the industry. What we’ve been told, briefly, is that while demand has slowed, the Indian companies are busy positioning themselves for an eventual turnaround. They giving their fresh hires from school extra months of training, investing in R&D, and looking for new growth markets.

“There’s a material change that’s happening in the industry that’s going unnoticed,” Nayar said.

The big challenge right now for the big Indian IT services outfits is the fact that their stock-in-trade, software application programming and maintenance, is a maturing market—with growth rates declining—even separate from the global economic downturn, he said. This represents, typically, 60 to 70% of their revenues.

He says they can’t just wait and hope for a rebound in demand. They have to use this downturn to strengthen their capabilities in other areas of outsourcing, including software package installation, remote infrastructure management, business process transformation etc.

One of the reasons that this business is slowing is that corporations see that they’re only spending about 2% of their revenues on IT, so even if they cut IT costs substantially, they’re not saving a lot of money. So they have to use IT to help transform the way they do businesses. “You have to offer to help them transform their businesses, not just cut IT costs,” says Nayar.

HCL is only about half the size of Wipro, but it’s still growing at a healthy rate thanks in part of a bunch of major outsourcing contracts that include business transformation as one of the main goals: They have inked $1.5 billion in long term contracts in the past 9 months, including Nokia, Readers Digest, Viacom, and Xerox.

When Nayar took the helm at HCL four years ago, he concluded that he couldn’t succeed by imitating the big players and focusing on software application development and labor arbitrage. So he charted a different course. That decision is starting to pay off big time.

TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/