HCL : The Three-Legged Giant

It

was yet another year of consolidation for the HCL group of companies. In

1998-99, Chairman Shiv Nadar carved out five companies–HCL Technologies, HCL

Infosystems, NIIT, HCL Comnet and HCL Perot–out of an existing 18. In

1999-2000, those five were again boiled down to three–NIIT, HCL Infosystems (HCL

Insys) and HCL Technologies (HCL Tech). While HCL Comnet Systems and Services

merged with HCL Technologies, HCL Perot Systems was assimilated through a 50:50

joint venture between HCL Tech and Perot Systems Corp. The result: HCL annexed

the title of the largest IT group in the country from the Tatas. This outlines

the facade of the group.

A different perspective emerges when we look at the various

group companies. While NIIT and HCL Tech faired well with growths of 27% and

28%, respectively, HCL Insys trailed far behind with a meager growth rate of

13%. While NIIT’s revenue crossed the Rs 1,000 crore mark, at Rs 1,096 crore,

HCL Insys followed close behind at



Rs 996 crore. HCL Tech, on the other hand, posted an income of Rs 830 crore.
Club these three together and the group is worth Rs 2,922 crore. In fact, the

group would still have been number two but for the fact that Dataquest has taken

into account the consolidated figures of HCL Tech according to the US Generally

Accepted Accounting Principles (GAAP), since a large number of its subsidiaries

are functional in the US now. Largely on account of this calculation mechanism,

the group has posted a growth of over 22% this year.

Shiv Nadar has exited from the boards of NIIT and HCL Insys.

This was done in accordance with the US law that prohibits a person from

simultaneously holding top positions in two different companies with similar

business interests. But Nadar, together with Ajai Chowdhry of HCL Insys and

Rajendra S Pawar of NIIT, has already re-written the script to reap the maximum

benefits of the emerging e-economy.

HCL Tech has identified four key factors to spearhead its

growth in the new millennium. One, choice of the right business opportunities

through identification and investment in emerging and high-growth technology

areas. Two, elimination of risk by avoiding a client concentration strategy.

Three, focus on employee value addition. Last but not the least, emphasis on

multiple growth windows. Accordingly, the company shifted its focus to high-end,

high value-added services and offshore-centric development in emerging

technologies of internet and ecommerce.

HCL Tech also realized that while the US was definitely a

growing market, other markets would also open up soon. This meant rolling out

one of the largest marketing channels in the industry–a global network of 25

sales and project management offices in 15 countries. This also meant that the

company increased its spending on sales and marketing, by 23% to be precise, as

compared to the industry average of 15%. Although this did have a negative

impact on profitability, the strategy was well in tune with the company’s

long-term objectives of reducing dependence on select geographies and customers.

HCL Tech’s fourth strategy has been critical for its

growth, and been a part of the big plan. Naturally therefore, 1999-2000 saw HCL

Tech grow through joint ventures, alliances, mergers and acquisitions.

The truly blue chip company in the HCL stable, NIIT,

introduced its brick and portal model to further consolidate its market share.

It also invested in Relativity Technologies Inc, a provider of legacy systems to

web transformation technologies. What’s more, the alliance with Australian

telecom giant, Telstra, has enabled NIIT to be an application service provider,

offering a broad range of value-added applications and communications services

to its customers.

Not that all has been smooth for this IT education giant.

While the company has made significant headway into software services, it is

facing an uphill task in graduating from a player in the career education

market, with its long-term courses, to the professional education segment.

However, NIIT has managed to grow at a rate 6% higher than the industry’s.

HCL Insys, on the other hand, has powered its way to the top

position in the domestic hardware segment, notching up a share of 15.5% in the

PC market. Good news indeed, for the company not only managed to create momentum

in its stagnating PC business, but also crossed the 100,000 mark in PC sales.

However, in a year when PCs drove growth in the hardware sector and crossed the

million mark, one expected better volumes from this oldest PC player in the

country.

There has been a major shift in HCL Insys’ business mix–from

hardware to IT services. It has also decided to become the country’s largest

internet service provider, completing its ambitious repositioning exercise

during the fiscal–the overreaching theme being ‘eVOLVE’.

HCL also redefined quite a few corporate rules in India, ambition for growth

being one of them. And as if organic growth was not enough, all the three group

companies took the merger and acquisition route to the summit. Whether or not

the strategy will pay off in the long run is another matter, the fact remains

that the group has managed to regain its numero uno status this year. DQ