Don’t call HCL an offshore player!

(By Anthony Miller – Thursday, 5th March 2009 10:00pm). It was great to meet up again with Rajeev Sawhney, HCL’s President, Europe Operations. Rajeev was recently appointed global head of HCL’s Aerospace & Defence, Energy & Utilities, and Public Sector verticals (in addition to his European role!) as a direct result of the Axon acquisition. I’ve met Rajeev before both in India and in Europe, and this time we talked about HCL’s ambitions in the UK and Continental Europe.

In 2008, HCL derived 29% of its $2bn revenues from Europe, the second highest proportion among the Indian SIs (TCS is at 30%), and I estimate that ~80% of HCL’s European revenues came from the UK. Unusually for an Indian SI, over 80% of its European headcount are nationals, 2,200 in Northern Ireland alone. Most recently, HCL appointed ex-IBM’er Liselotte Hägertz Engstam as Vice President for the Nordics, echoing the trend among its peers to put local management in place in European country markets. This is why Rajeev’s hackles rise when people refer to HCL as an ‘offshore’ player. “We’re not an offshore player – we are a global IT services firm which just happens to be based in India – just as IBM is based in the US or Capgemini in France”. It’s a fair point, and one which reflects what I believe is a profound shift in the way that customers are increasingly viewing HCL and the other leading India-based SIs.

I voiced my concerns to Rajeev about the prospects for success with Axon, which is now integrated with HCL’s India-based SAP practice in a separately branded business unit, HCL-Axon. He pointed out that HCL has plenty of experience integrating UK staff, including BT’s Northern Ireland call centre and various major outsourcing deals such as with DSG. He told me they have a very strong pipeline in the new business unit, and an increasing number of new prospects. As ever, the numbers will tell all, and I was assured that HCL will disclose the HCL-Axon financials in future reports. In theory, Axon’s front-end and HCL’s back-end should be a potent combination. But let’s wait and see how the numbers play out.

The other contentious acquisition (at least in my view) was of Liberata Financial Services (LFS), the Life & Pensions (L&P) arm of deeply troubled UK BPO player, Liberata. LFS was purely a closed-book business so Rajeev sees HCL’s first task to make the operation more efficient, then HCL will seek new clients. The L&P platform will remain onshore, much as TCS is doing with Pearl/Diligenta. I must be honest, I’m not ‘sold’ yet. This is a pretty big rabbit that HCL will have to pull out of a pretty small hat; meanwhile Capita carries on working its own magic in the UK L&P market all but uncontested. Nonetheless, let’s wait and see.

In Continental Europe Rajeev sees most opportunity in the Nordics, Germany, France and Benelux. Just at the end of January, HCL displaced IBM to win a 5 year end-to-end Global Helpdesk & Desktop Management Outsourcing megadeal to support Nokia’s operations in 76 countries. HCL will use delivery centres in India, Poland, China and a newly opened centre in Finland. HCL’s operations in the other major markets are not as mature – they have only just established a full country organisation in France though already have half a dozen clients among the major France-based multinationals. Given Logica's recent revelation by that they now have more offshore delivery into the Continent than into the UK, HCL seems to be judging its timing about right.

HCL has yet to gain the reputation in Europe of its larger Indian peers. Arguably, the sidelining of similar sized Satyam will point more prospects towards HCL, both because of its Axon-boosted SAP capability, and also because some customers may feel more comfortable dealing with a smaller player than TCS (3 times HCL’s revenues), Infosys or Wipro (both double HCL’s size). Like Wipro, HCL gets nearly 30% of its revenues in aggregate from infrastructure management and BPO, over double that of TCS and Infosys. These are ‘propositions’ that should work especially well in the current ‘make do and mend’ spending squeeze. HCL has made bold moves in Europe, both organically and acquisitively. Now it has to make them work.