HCL CEO Vineet Nayar: Outsourcing is dead, and there's nothing innovative in cloud technology

He wrote the book on a philosophy known as 'employees first, customer second.'

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You're doing a lot of hiring in the United States. Why the expansion and what roles are you hiring for?

When we started looking ahead, we asked what would be a competitive differentiator for HCL in 2015? What we discovered was in 2015 there will be lots of people whose nephews, sons, daughters would not have any job when they graduate from college because the state of the economy doesn't seem to be getting better, especially in the U.S. and Europe. The scenario we painted for ourselves is that in 2015 lots of buyers will be more socially aware and responsible [about hiring] than they may be today. A similar thing happened when we talked about "green" a few years back. Green adoption five years ago was optional. Today if you are not green as a company, a lot of customers will not buy goods and services from you.

By 2015, if you do not demonstrate yourself to be socially responsible in the communities where you do business and you're not in the business of creating jobs in the community, the customer base is not going to do business with you. Having decided that we would be in the business of creating jobs, we [then determined] how we can create jobs despite the cost difference between the U.S., Europe and India. That leads me to your previous question [on automation]. We developed and invested significantly in tools and processes and industrialization, and joined hands with the local community colleges and colleges, so that we can train the engineers while they are in the final year of college. We joined hands with the local governments, local councils which are interested in creating jobs and created a business model in which we believe we can deliver IT services from near-shore at affordable cost. Not at the Indian cost, but still at affordable cost. We believe as we mature this model by 2015, we would have a very compelling proposition for our customers at affordable cost and will be seen as a socially responsible business which has created jobs in the community and that will be a competitive differentiator for HCL, just as 'employee first' is today.

HCL is one of the top users of the U.S. H-1B visa system. How do you respond to critics who say that outsourcers are abusing that system and that that ends up costing U.S. IT workers their jobs?

First, amongst the Indian players and the global players, HCL is amongst the lowest users of H-1B because we do a lot of local hiring. That's correcting your facts. Number two, unemployment in the IT workforce in the U.S. is 3.8 percent, so there is a significant skill shortage in U.S. We have only two choices, to either invest in creating a skill pool, which is what we are doing under our socially responsible initiative, or you have a visa regime in which you can bring in the talent pool. You must understand that IT is now all about survival and competitive differentiator, and it is not about cost reduction. The answer to the critics is that, number one, IT unemployment today is only 3.8 percent, so we should not [confuse] it with the overall unemployment rate of 8 or 9 percent. Number two, if there is a skill shortage, there will be a competitive disadvantage which companies will face. Number three, we are working very hard to expand the skill base within the U.S. and European geography so that we hire more locally. Number four, the reflection of that is the lowest usage of H-1B by HCL compared to some of our colleagues in the industry.

Vineet, HCL is listed as number 8 on the top 10 list of H-1B visa approvals by the Citizenship and Immigration Service. That's where my data is coming from.

Once again, most of our colleagues in the industry are above us. We are eight because of our size and scale.

I wanted to switch over to look at the market in India. How significant are the hiring, wage and skill acquisition pressures that you face in India today?

I think it's a very interesting question. In India, there is an abundance of engineering colleges and a lot of workforce joining the IT services pool every year, and therefore the supply is significantly higher than demand. I think the IT industry is not hiring more than about eight percent or nine percent of the total engineering pool which comes into the market. However, most of this engineering pool is not employable, predominately because of the quality of education. Some of these education institutions are not something to write home about. What the industry has done uniquely different in India, which is what we are attempting to do in the U.S., is to go back and invest in educating those low-quality engineering colleges and improve the standard of education by investing in back-to-school programs. With the back-to-school program, the industry has taken charge of this issue and, therefore, there is a surplus of people available as long as we keep investing in that program. There has been no salary increase at the entry level, it's marginal, for the last 5-7 years, predominately because the industry keeps on expanding the pool of available skills resources, which is what our intention over a long period of time in the U.S. and Europe is.

What do you think the future of outsourcing holds? What would we expect HCL to look like in say 3 years from now?

First, outsourcing is dead. Co-sourcing is the only way to go. The customer has to be in control of their destiny. It is impossible for somebody else to control the destiny of the customer, and therefore you will not hear the word "outsourcing," you will hear the word "co-sourcing" going forward. The second aspect of co-sourcing is going to be that the customer is going to be more concerned about revenues than cost, more concerned about innovation than cost, and therefore unless the co-sourced vendor has an answer to what innovation and what revenue increase ideas he brings to the table, and how he funds it by reducing cost of running the business through industrialization, he will be out of business. Now, that is very different to our current offering, which is still about on-tap, high-skilled resources, low-cost resources -- it is all embedded around resources. And I think that is going to dramatically shift around innovation, around service delivery, around industrialization and around revenue increase.

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