06 CORPORATE NEWS
mint
WEDNESDAY, AUGUST 13, 2008 ° WWW.LIVEMINT.COM
VINEET NAYAR/HCL TECHNOLOGIES
HCL will be a business problem solver, going beyond the IT box MADHU KAPPARATH/MINT
New challenges: HCL Technologies’ Vineet Nayar believes innovation will be necessary for the company. B Y K RISH R AGHAV krish.r@livemint.com
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he remote infrastructure management (RIM) services business of India’s fifth largest computerservices provider, HCL Technologies Ltd, is the biggest in the industry. The RIM business has powered the firm’s revenues to $1.88 billion (Rs7,971 crore today) in its fiscal year to June from some $764 million in fiscal 2005. Of this number, $283.30 million came from infrastructure services, which includes RIM. In an interview on Tuesday, HCL Technologies’ chief executive Vineet Nayar said how HCL Tech, as the firm is commonly known, has grown its per-employee revenue more than 16% in the same period and how he intends recasting the company’s RIM, software applications, engineering, enterprise applications and business process outsourcing (BPO) businesses. Edited excerpts: You recently said HCL Tech’s reve nue model was completely differ ent. You also spoke about reengi neering product and service lines. Where does that stand now? When you run a business, the smart thing to do is not to run all your five cylinders at the same charge. For us now, the applications (business) cylinder, the engineering cylinder and the infrastructure cylinder is firing, so we pulled back the enterprise application and BPO cylinders to try and rejig the business. I have also
mint INTERVIEW announced that I’m going to pull back the infrastructure cylinder because I’m seeing a completely new disruptive model come into place. Right now, we’re working on rejigging the enterprise applications business using enterprise solutions. We believe we want to go into the business where we’re going to kill custom applications. The problem right now is that enterprise applications are too expensive, and too difficult to implement. We’re trying to see if we can implement it in seven days, theoretically speaking, at one-10th of the cost of what it is today. We launched a product last month, which is making headlines at all customer locations, saying we will upgrade their enterprise SAP (a business software product) free of cost, and leverage the savings from that upgrade by bringing in process transformation.
‘We’re working on rejigging the enterprise applications business using enterprise solutions.’
Do you see such a model moving towards a software as a service delivery? Software as a service is a big theme by HCL launched 24 months ago. Assume you want to buy ERP (enterprise resource planning). What we are saying is, we will buy the ERP, host it, have templates for, say, the media industry. You can log in, we will transfer your data in seven days, and you will be up and running in that time, on a hosted, utility-based model. That’s the re-engineering that’s happening in the enterprise space. Instead of charging more and more, we’re trying to see how we can create a business of self-funding all of this by reductions in cycle time. We want to see that all transformations are funded by new operations. Any examples? Take an insurance company client. For an insurance company, the more products you have, the more revenues you generate. But the more products you have, the more it increases IT (information technology) complexity and cost. So what is the optimal level in this scenario? You had to replatform the entire application so you could deliver a level of service to your customer which is unique. And, with a little bit of change, you can change the product and create customizations. We did this entire rearchitecting, and now they have doubled the number of products and reduced costs overall by 30%. Per product cost has come down by 60% and they have been voted the best in-
PRESSURE ON MARGINS
SingTel misses earnings forecast; stronger currency blamed B Y J ENNIFER T AN feedback@livemint.com
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outh-East Asia’s largest telecom firm, Singapore Telecommunications Ltd, missed forecasts with flat quarterly earnings after a strong Singapore dollar crimped contributions from its Asian mobile businesses, sending its shares to a four-week low. The state-controlled telecom firm, known as SingTel, which generates about three-quarters of its group sales abroad, cut its
guidance for earnings contributions from foreign operations and warned a strong Singapore dollar would hurt its performance. “The major disappointment came from regional associates’ contribution,” said Morgan Stanley analyst Navin Killa. “While Singapore and (Australian unit) Optus have shown steady growth in revenues, both businesses face margin pressure due to rising competition.” SingTel shares sank as much as 3.6% on Tuesday. They closed 1.7% down at S$3.52
(Rs105.42) while Singapore’s benchmark Straits Times Index fell 0.3% to close at 2,816.82. Killa, who rates SingTel “equal-weight”, recommends investors switch to rival StarHub Ltd for exposure to Singapore, and invest directly in SingTel’s affiliates—India’s Bharti Airtel Ltd, Indonesia’s Telekomunikasi Selular, or Telkomsel, and Advanced Info Service in Thailand. The Singapore dollar has risen an average of 7% against the Indonesian rupiah, the Philippine peso, the Thai baht and
surance company in their region. And they did not pay even a dollar more from Day One. So, they did the entire transformation from the saving they accrued. You mentioned a disruptive model coming in the infrastructure space. Brilliant ideas sometimes come from a simple change in context. In remote infrastructure management, we are retaining the word remote, but are testing the words infrastructure and management, to see what more could it mean. Who said infrastructure is only IT infrastructure? We have said it. But why can’t you also make more manageable devices—mobiles, PDAs (personal digital assistants), consumer electronics, automation plants, printing machines? Why are we obsessed with managing only IT infrastructure? Similarly, why can’t we expand the word management to become more proactive, so it becomes remote infrastructure pro-activeness, so we get into predictive and not reactive management? So when you test these words, interesting ideas appear, and these innovations can sometimes become viable businesses. Do you have the skills to, say, run a water plant in London, or a power station in Cincinnati? The answer is yes and no. After I said this at a Fortune (magazine) conference in San Francisco, a number of people have written to me and said we would like to see how you do this. A lot of people collaborate to create a new business model. In a global world, you spread the word that HCL is rethinking the world infrastructure, and you immediately have people going “A ha! Yes”. We went into aeronautics this way. In aeronautics manufacturing, there is now HCL’s plant automation service that’s come up in the last 12 months! What’s dawning on me is that this definition of IT is a box we’ve created for ourselves, and to explore that space outside it will create immense value, but it’s too early to say what those effects will be. Do you see yourself as an engi neering company 510 years from now? No, I think we will be a business problem solver. We will leverage all our strengths to become a business problem solver; it could be plant automation, managing mobile devices, it could be managing IT, it could be anything, but not restricted to that IT box.
the Indian rupee in the June quarter from the March quarter, according to analyst estimates. “The pre-tax earnings contributions from the regional mobile associates are expected to grow at low double-digit level and at a pace slower than the past two years,” chief executive Chua Sock Koong said at a media briefing. SingTel, Singapore’s largest listed firm valued at more than $40 billion (Rs1.7 trillion), made April-June underlying net profit, before goodwill and exceptionals, of S$865 million, versus S$868 million a year ago, and missing an average forecast of S$930.3 million. First quarter attributable net profit was S$878 million, down 5.3% from last year. Facing a domestic market of just 4.6 million people where
WEB ECONOMICS
DAVID WEI
INDIAN SUPPLIERS AT THE WORLD’S FINGERTIPS
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n the ancient Arab story, a young man, Ali Baba, discovered the 40 thieves’ secret treasure trove after shouting the words “Open, sesame”, and thus became rich. Today, Alibaba.com is an e-commerce company that has created a number of millionaires around the world from global trade. With its booming domestic economy and huge number of small and medium enterprises (SMEs), India is an important market for Alibaba.com and we want to help hundreds of thousands of Indian companies become millionaires too. We can do this by helping Indian suppliers find new customers, in India and abroad, and expand their business. Procurement officers worldwide are now looking online to find potential trading partners. Virtual marketplaces are growing in prominence because of their comparative advantages over traditional channels, including cost effectiveness, ease-of-use, and large communities of qualified buyers and suppliers. They have also significantly shortened the time needed to find new products and qualified suppliers, which makes them very attractive to buyers, big and small. Research shows that the discovery phase—when buyers search for sellers—is the most time-consuming and costly phase of the sourcing cycle. Online marketplaces can reduce the time required for the discovery phase significantly by providing information on products and suppliers from around the world 24 hours a day, seven days a week, 365 days a year. Aberdeen Group pointed out in a 2006 study that while supplier sourcing generally takes a company three-four months using traditional channels, over half of Alibaba.com’s members spend just two-four weeks on an average to complete the process. One of our members once told me: “What used to take weeks and months to source, now literally takes minutes and hours through the Internet.” In addition to supplier matching, some online marketplaces also offer offline services to Indian suppliers, including educational seminars, private sourcing events and trade show appearances. Many international buyers are also leveraging on the convenience of the Internet to set up physical meetings at trade shows with suppliers they have met online. India already has one great advantage in global trade: language. While India is a diverse country, with 23 official languages and more than 1,000 dialects, English is the official business language that makes international expansion easier for Indian SMEs. Last year, Alibaba.com launched a dedicated India channel on our marketplace, which provides a direct link between international buyers and suppliers in India. It highlights all the latest hot products from India, such as textiles, home furniture, industrial machinery and auto parts. Currently, we have more than 400,000 members from India, and more than 20,000 new companies are signing up each month. With more big corporate buyers looking at India as one of the next major manufacturing hubs after China, now is the time for Indian suppliers to proactively market their products beyond India. The easiest and cheapest way to do this is through online marketplaces. But being found by an international buyer is only the first step. Indian SMEs must rise to a new level to meet the stringent requirements of the global marketplace. International buyers demand high-quality products at competitive prices, speed to market, compliance with industry standards and technology capability. From a country level, India must also improve its infrastructure and showcase its wide range of products and services to attract more serious buyers. I have no doubt that Indian SMEs will seize the opportunities before them. We look forward to working with our local members to support their expansion and watching them prosper. David Wei is chief executive officer of Alibaba.com. This is the second of an exclusive five-part series he is writing for Mint. Respond to this column at feedback@livemint.com
COMMENTARY
virtually everyone has a mobile phone, the firm has spent S$18 billion in recent years buying stakes in operators in highgrowth Asian countries such as India and in Australia. Christopher Wong, fund manager at Aberdeen Asset Management, said SingTel was still a superior cash-generating company despite its slower earnings growth. “At a time when companies are facing pressure on their margins and working capital, having strong cash flows is quite a bonus.” SingTel reported a free cash flow of S$553 million for the quarter, flat from a year ago. Chua said the group was still looking for acquisitions, and was monitoring developments in Vietnam and China closely. “Our investment focus remains in Asia, but we are trying to learn about new markets in
the Middle East and Central Asia. That is in the early stages.” SingTel, which confirmed it will launch Apple Inc.’s third generation iPhone in Singapore on 22 August, reported group operating revenue rose 5.9% to S$3.78 billion. Optus, SingTel’s single-biggest revenue and profit generator, posted flat net profit of A$122 million (Rs457 crore) after depreciation charges. SingTel also owns big stakes in six emerging market mobile operators, including India’s Bharti Airtel. Pre-tax profit from mobile associates fell 11% to S$582 million, hit by the strong Singapore currency, lower earnings from Telkomsel, and losses from Pakistan’s Warid Telecom. REUTERS Charmian Kok contributed to this story.