China to overtake India as world's biggest supplier of cheap IT talent in 5 years: Vineet Nayar

It's not a position every CEO would want to be in - in front of a 5,000 strong audience of regular employees with a license to speak their mind.

But for Vineet Nayar of HCL Technologies, the number five Indian IT services firm, the annual townhall is an opportunity to feel the pulse of the employees, and of course, share his own concerns with them. Among the biggest priorities are dealing with the rise of China and the western IT supermarkets.

"This is the year in which we have had the highest proportion of questions related to strategy.. and the lowest on HR," says the 56-year-old CEO who has relentlessly pushed for 'transformative' change in the organization after taking over five years ago. Unlike the leaders of bigger peers like TCS and Infosys, Nayar has always seemed like a man in a hurry, even a bit paranoid. While other CEOs have maintained an appearance of confidence and calm, Nayar has always jostled with his organization for change, and the abundance of strategy-related questions from employees seemed to underline his concerns.

HCL, like Wipro Technologies, has always been after the 'next paradigm', and the anxiety of the employees on surviving their company's positioning was just what Nayar seemed to be looking for. "China is the biggest threat to Indian IT industry," he says, dismissing objections that India's northern neighbour still has IT service firms that are midgets compared to HCL. The annual increase in employee wages in India, he says, will soon see China usurp India's position as the source of the cheapest IT engineers in the world.

"They are where we were 10 years ago.. Nobody believed we could do it in 2000, so we were under the radar. Suddenly, by 2005, we burst upon the scene with multibillion dollar companies," he reminds, adding with confidence that by 2015, China will be the default destination for low cost IT workforce.

"GE's recent announcement is a good indication," he says, referring to the American giant's prediction that it sees its future outsourcing evenly balanced between India, China and Latin America. At present, GE, credited with having kicked off the outsourcing revolution in India 20 years ago, currently diverts about 70% of its considerable outsourcing and offshoring needs to India.
At the end of the next five years, Nayar says, HCLT will not have any revenues coming from the time and material contracts, under which companies pay their vendor based on how many people are working on its support services. Such an approach, he believes, has discouraged IT service providers from increasing their efficiency by using automation.
"In the past, companies have thrown more and more employees at problems," tells another employee who was worried about project teams not using the correct software tools and relying on spreadsheets to keep track of their activities. Time and material contracts currently account for around half of the revenues of big Indian IT firms, down from around 90% ten years ago.

In another five years, Nayar says, IT will be treated completely as a utility, provided by vendors who charge per transaction irrespective of how many people and effort are deployed on the contract. If the proper technology and tools are used, the amount of work currently being done by 100 people can be done by 20, he points out.

"In five years, we would have dramatically changed to become a utility," he says, pointing out that if the employees of HCL do not cut costs by using tools and machines, "someone else will."

The formation of IT super markets -- such as the acquisition of service firm EDS by HP and Perot Systems by Dell -- points in the same direction, he points out.

Like Infosys, which wants companies to outsource entire departments to it instead of just the IT department, HCL's bleeding BPO business will play a crucial part in the new offering. The unit, which has been bleeding for several quarters, is at the threshold of achieving the transformation, he assures his employees. Around 8,000 of its 70,000 employees have been taken over from the clients as they outsourced entire departments for HCL to run and manage.