We are looking at being a global R&D organisation
We are looking at being a global R&D organisation: G H Rao
How strong are Indian IT services players in engineering and R&D services?
If you ask me whether Indian IT services companies have the intention to do it, the answer is Yes. While companies are seriously wanting to get into ERS, the new players are not there yet. However, some of the older players are definitely getting traction. Not just the Indian services companies, we believe that even the multinational players have an eye for getting into engineering services. But, the entry barriers in this sector are higher compared with those for traditional IT services. For us it was easy because we come from a product development background. It’s there in our DNA and that’s why we are more successful.
Has the scope of engineering and R&D services changed in recent years?
The market itself is expanding and, thereby, the scope of what we are doing is also expanding. If you take the initial days, what we were doing for customers was mainly staff augmentation or other such small things. Today, we are developing end-to-end products for clients, helping them innovate and helping them to do things efficiently. It is not only new products that we are working with them on — there are times when we are helping them make their existing products more efficient. Clients definitely see the benefits in what we can do because we have a lot more breadth than what their own centres can do.
Could you talk about the demand environment in ERS currently?
Traditionally, engineering and R&D used to happen through clients’ own development centres. While that is continuing even now, leveraging companies like us as partners in developing products for them is also becoming fairly well-recognised. Compared with earlier times, today you would see many large companies using these partnerships to be able to develop better products. Besides, leveraging talent in engineering in India is definitely on the upswing.
India is still not a significant market for ERS. What do you think is the future for this in the domestic market?
The investment of Indian companies in R&D as part of the GDP is the lowest. Our low-hanging fruits are in markets where R&D spend as a percentage of the GDP is higher, where we can get better returns. So, India is not a low-hanging fruit for us. In India, we do work with the defence and aerospace sectors. These are the only two areas where we see a play. Other than these, some serious R&D being done in India is in the automotive segment.
Some of your peers have started seeing traction in the Indian market off late. Would you look at Indian at some time?
Definitely, as the country matures, we will look at India. The maturity of companies over here for a structured outsourcing is not very high. So as and when they mature, it will make business sense.Are you looking to expand into new sectors for ERS?
Our belief is that we have a lot of headroom for the sectors we engage with. It is easy for us to grow in the areas where we have existing serious mass. We have not yet hit the roof in our existing segments. So, at this point of time, we are just focusing on optimising what we have, rather than spreading ourselves too thin in other areas.
What is HCL’s expansion plan in ERS?
ERS is an extremely important business for HCL and that is why we are structured much more strongly as against our competitors. We definitely see growth in this area but it is hard for to say how much. Since we are expecting growth, capacity has to go up. We are also setting up new global centres outside India. We are looking at being a global R&D organisation.