At a time when macro-economic indicators in the US and Europe are pointing towards the possibility of another recession, HCL Technologies, which counts the US and Europe as major markets for its IT outsourcing deals, feels the current crisis is an opportunity rather than a threat. Vineet
Nayar, vice chairman and CEO of HCL Technologies told HT the reasons for the company's optimism. Excerpts:
The economic indicators in the US and Europe are indicating the possibilities of a double-dip recession. In this backdrop what makes you so confident and optimistic?
Well, I agree that the macro-economic indicators are bad in the US and there is a debt crisis in Europe. Also, both Japan and West Asia for different reasons are looking bad. So the symptoms are bad indeed. Now the question is what the response would be to these symptoms. I believe that the response in Continental Europe will be to outsource more because their cost structures are not correct. So we will see an increase in IT outsourcing. The US will be a different ballgame as they had already reset their cost structures though increased IT outsourcing earlier. However, the outsourcing deals which were signed in 2005, 2006 and 2007 (before the 2008 recession) are now coming in for renegotiation and HCL stands a great chance to bag these deals.
So, while Europe will outsource more to cut costs, it's the churn of existing deals of global IT biggies in the US which we expect to bag.
Why is this churn happening?
During the recession (of 2008) most vendors did not behave properly with customers and that is the major reason for this churn.
Typically 95% deals during renegotiation go back to the original vendor. Only 5% deals churn out to the new vendor. This has now increased to 30%.
There are reports that the IT budgets are coming down…
Yes it is true that it is going down but while around 50% growth comes from existing customers, the rest 50% comes from new customers. So delay in IT spends by exiting customers is topped up by new customer wins and this has been our strategy to increase marketshare.