BackHCL challenges IBM with push in old Europe
HCL plans to snatch more contracts to manage companies' computer networks in Europe, challenging incumbents such as IBM
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Zurich: HCL Technologies Ltd, the Indian software developer founded by billionaire Shiv Nadar, plans to snatch more contracts to manage companies’ computer networks in Europe, challenging incumbents in the region such as International Business Machines Corp (IBM).
“The European market is still largely underpenetrated from our point of view. especially when you look at Germany, Switzerland and France" and the slow pace of Europe’s recovery from recession is causing more companies to use outsourcing, chief executive officer (CEO) Anant Gupta said in an interview at Zurich airport. “We are at the right place at the right point in time."
The Indian company’s European revenue growth outpaced competitors such as IBM and Cap Gemini SA in the last financial year, jumping 24%, with customers including DNB ASA, Norway’s largest bank, and Swiss drug maker Novartis AG. Now it plans to push deeper into Europe’s largest economies France and Germany, as well as Switzerland and Austria, said Gupta.
Businesses in many European countries that previously shied away from outsourcing for political reasons and labor union issues are now considering it, said Anurag Rana, an analyst at Bloomberg Intelligence in New York.
“After the previous recession, the slowdown was so big that Europe is now looking at outsourcing in a very serious way," said Rana. “What that is doing is giving opportunities for vendors like HCL."
Price competition
HCL and larger Indian peers such as Infosys Ltd and Tata Consultancy Services Ltd lure clients on price, said Rana.
“But that only lasts for a short while," he said. “To the credit of the Indian companies, once they get an account they service it well, so it’s difficult for the client to leave them. Then they get more work and they start taking market share away from the likes of IBM, Cap Gemini and the others."
HCL, based in Noida, near New Delhi, has added more than 8,000 employees in Europe in the past four years, Gupta said. Two months ago, it hired Matt Preschern, a former IBM executive, to head marketing. Europe accounted for 32% of HCL’s sales by 30 September.
“The IT management market is not increasing per se by dollar value, it’s really a market-share movement," Gupta said. “Historically, it was being outsourced more to traditional" suppliers such as IBM and Cap Gemini, he said.
Engineering development
Europe’s crawl out of a recession is also spurring demand for outsourced engineering development for products from car video-entertainment systems to health-measurement devices, Gupta said. He sees revenue in this area accelerating over the next 12 to 18 months.
Still, a strategy of luring custom with lower prices may fail if it spurs the old guard to up their game, said Rana.
“You cannot discount the fact in this business that years of experience and existing relationships do mean a lot," said Rana. “If old incumbents are able to match aggressive new companies in pricing, then they have the edge."
HCL’s other competitors include AtoS, Wipro Ltd, Cognizant Technology Solutions Corp. and Hewlett-Packard Co.
The company’s European sales rose by almost a quarter to ₹ 9,260 crore in the fiscal year ended 30 June, according to data compiled by Bloomberg. IBM’s global services revenue dropped 3.2% to $56.9 billion in 2013, while its total sales in Europe, the Middle East and Africa fell 0.6% to $31.6 billion.
HCL shares have climbed 28% this year in Mumbai, giving the company a market value of about $18 billion. IBM fell 13% in New York in the period, while Cap Gemini rose 12% in Paris. Bloomberg
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