Hewlett-Packard's Success With Buying EDS Depends on India.

Posted by: Bruce Nussbaum on May 14, 2008

HP is taking on IBM in the tech outsourcing business by buying EDS and how well it succeeds will depend on India. That’s right, India. The media is focussing on the difficulties of merging the different cultures of West Coast-based HP and Texas-based EDS but I think the real issue will be the availability and price of Indian talent.

IBM has been increasingly successful in managing the technology infrastructure of corporations because it moved most of the service labor to India in recent years. IBM is the leader in the services market with revenues of about $54 billion. EDS is second at $22 billiion and HP is third with about $17 billion in revenue.

Much of IBM’s success is to to the nearly 75,000 people working for it in India out of about 120,000 employees. EDS, with 140,000 employees only has about 28,000 people in India. That has pushed its costs higher than IBM’s. It’s operating margin, at 6%, is half IBM’s.

The big job for HP CEO Mark Hurd will be to find enough talented Indians willing to work at modest wages. That won’t be easy. Wages

among India's tech elite have been soaring in the past two years. And IBM has locked up much of the talent (although now it may have to pay more for it). IIT and other elite Indian schools aren't graduating enough engineers to meet the market demand and lesser qualified students from regional colleges are being hired.

This could prove problematic to HP. Both IBM and HO should be supporting these regional colleges in a big way to boost the supply of highly trained Indian engineers and software writers.

Reader Comments

Glenn Woodard

May 14, 2008 5:58 PM

I am ticked off at hp buying EDS and driving the hp stock price down. Maybe the analysts and investors are smarter than Mark Hurd. EDS will be an anchor around his neck.

AmitJ

May 15, 2008 7:45 AM

I have to say I am surprised that HP is buying EDS. But perhaps HP has no choice but to strike now in order to preempt an acquistion of EDS by one of the Indian outsourcing companies.

Feng Yuan

May 15, 2008 10:25 PM

Just replace India with China.

While India does not have enough IT professionals, China has too many. Just look at the recent success of China's IT outsourcing company VIT. VIT's two many customers are IBM and Microsoft.

Even India IT companies are opening up offices in China.

OutsoursingEmployee

May 16, 2008 4:58 AM

Two problems with this analysis, (1) Much of EDS's contracts are federal which prohibit the use of offshore labor, and (2) everyone in the industry knows that India has overpriced itself and the current opportunities for cheap labor is in Latin America, Eastern Europe, and Asia.

mahbub

May 22, 2008 7:00 AM

you read it just

Andy

May 22, 2008 3:43 PM

I belive that HP aquiring EDS is a smart move. It is almost like divesting HP's services business while gaining revenue.

In all probability, the larger EDS services arm will absorb smaller HP services in its structure.

Let us not forget, EDS is profit making comapny and HP deal is all cash for EDS shares. What is more with EDS shares being boughtout for cheap, HP will be able to show higher Earnings and Revenue per share. On a persnal leevl, I am buying HP shares for long term... this deal is a winner baby...

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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