Hewlett-Packard (HP), the world’s third largest IT services company, is leveraging its Indian offshore presence in a big way. Pankaj Mishra finds that apart from doing partial outsourcing for several global wins, the company is also looking at the domestic market and has won a few multi-million projects in the country

According to official sources at HP Services India, HP is outsourcing some large global projects to India and volumes are rising. In the domestic (Indian) market, the company expects the average size of contracts to rise from $1-2 million to $5 million over the next few years. “We see a tremendous increase in local outsourcing taking place. Many Indian companies, especially in the telecom vertical, are planning to increase outsourcing,” says N M Sundaram, the country manager for Strategy, Marketing and Alliances, HP India.

HP Services, with average quarterly revenues of about $3 billion, manages information technology resources for other companies and operates as a consulting arm for HP. This division, along with the imaging and printing unit, is the only profitable business in the company. HP Services, which ranks third in the global IT services market behind IBM and Electronic Data Systems (EDS), posted combined revenues of $1.4 billion in Asia-Pacific for the year ending October 31, 2001.

Challenging Indians on home turf
HP has recently won several domestic projects, bidding against the likes of Wipro Infotech and TCS. The company recently announced two major customer wins worth $7 million in India. The wins include a $2 million contract from Ashok Leyland, a leading heavy commercial vehicle manufacturer and a $5 million contract from Tata Steel, Asia’s first and India’s largest integrated private sector steel company. HP Services has clinched a three-year contract to equip and provide managed IT services to Ashok Leyland, spanning 32 locations across the country. Tata Steel selected HP to develop and deploy complex solutions and deliver outsourcing services to manage its multi-vendor, distributed IT environments.

HP expects revenue from its Asian IT services operation to be flat in 2002. However, it also expects Asian revenues to double by 2006. This growth will largely come from managed services, where companies outsource part of their IT resources to cut costs. “India is playing an important role in our managed services business. Apart from being a market for such services, we are also leveraging our Indian presence to cater to some regional customers,” adds Sundaram. HP Services has established a 30-seat centre for Peoplesoft in Hyderabad.

HP aims to grow its managed services revenues at an annual rate of 6 to 8 percent—twice the average growth rate of all managed services players—over the next four years. In the next three to four years the company expects managed services to account for about 30 to 50 percent of its services business, up from the current 15 percent.

Hub for global outsourcing
Digital Global and HP Services India (formerly HP-ISO) are the two pillars of the company's Indian offshore strategy. These two divisions are executing many global projects. Company sources however decline to name these projects. “We are able to offer competitive rates globally because of our offshore advantage. As a part of our increased thrust on services, outsourcing to the Indian operations has increased,” adds Sundaram. Global players such as IBM Global Services, EDS, CSC and Accenture already have an offshore presence in the country. Though late to this party, HP will not only join this league of elite services companies, but take them on in India.

1-2-3-4 strategy
HP Services’ 1-2-3-4 strategy aims to double top line numbers in the next 3-4 years with faster growth in profits. It also aims to drive the organisation and become the leading IT services provider in India. The strategy is outlined as follows:

• Aggressively capture all merger synergies: The merger with Compaq has doubled the size of HP’s services business, with increased capability, depth, strong account relationships, and shows potential for increased efficiency.
• Win big in the core: HP will play to its strengths, entrenching its market leadership in infrastructure and mission-critical services, multi-vendor services, financial services, and manufacturing and government verticals.
• Build leadership positions in target segments: HP will be highly focused on segments that are under-represented in its portfolio today—managed services and applications support are two such areas where HP Services has a differentiated proposition and competitive advantage. This will be achieved by targeting the banking, financial services and insurance (BFSI) sector, manufacturing and government, building best-in-class expertise and delivery capabilities in each area, and cultivating a strong base of reference accounts for each thrust.
• Transform for the future: HP Services plans to become the lowest-cost provider for an entire range of support, consulting, and outsourcing services, relying heavily on industry-leading resource centres in China and India. It also plans to have knowledge management mechanisms, mutually reinforcing partnerships with ISVs and the strongest talent pool wherever HP competes.

Sub-contracting to Indian firms
Many industry observers have been talking about how Indian players can align with these MNCs to explore sub-contracting opportunities. HP Services is also understood to be sub-contracting work to some Indian companies. “We have been sub-contracting work to several Indian companies, not necessarily to the big ones. Going forward I see an increase in sub-contracting,” says Sundaram.

Final take
MNCs in India have always been considered a threat to Indian players focusing on the overseas markets. HP is the first MNC services player to aggressively target the domestic market, even more than IBM Global Services has. HP’s focus on the domestic market will change this perception for good. For Indian software services majors, it looks like they’re going to face a challenge from HP Services right on their home turf.