HCL Targeting European SAP Services with Axon

A recent interview with the CEO of HCL came out following the company's completion of its acquisition of Axon.

CEO, Vineet Nayar, clearly states that HCL will use Axon to target the Western European market, which outside of the UK has been a pretty tough region for Indian offshore players to do business in.

In particular, he states: "The UK is a stepping stone and markets such as France, Sweden, Germany and the Netherlands are growing at a colossal rate.” In my opinion, he might be making the common mistake (which I used to hear all the time from US executives!), that Europe can be treated as a single market... He goes on saying: “the first thing is identification of unhappy customers elsewhere and make them happy customers."

“In effect, Axon has reversed merged with HCL” he said. “It is being kept separate from the rest of the business, with a separate identity and culture.” That final point might cause some problems for HCL, in my opinion, since on one hand it is certainly smart to keep the Axon business as a separate brand, however, the margin pressures coming from HCL will certainly create some heavy-fisted situations on cost structures. In this case, the whole culture clash issue comes into play, since Axon developed a very unique and rather loose organizational culture that at first glance doesn't seem to mesh well with that of HCL.

Nayar also went on to say that Deloitte, Logica, Capgemini... even IBM and Accenture will be competitive targets. Well, it seems very ambitious: Axon itself wasn't yet at the same level with these competitors, and certainly not outside of the UK! For example, in the U.S., the company had a significant presence, however it was often relegated to the lower margin and lower strategic importance of SAP sub-contracting.

Like other Indian offshore suppliers, HCL certainly is looking to move up the value chain, and to dismiss this strategy would be very dangerous for traditional / regional IT services suppliers. However, HCL has a great deal to prove in its ability to effectively integrate such a large business successfully (in IT Services it is the largest by an Indian offshore thus far!), provide more than RICE and testing services around SAP, as well as to enter new geographic markets outside of the US and the UK.

Again, with the approach stated by Nayar to use the UK as a stepping stone to France (ahem... I'll let my respective French and British colleagues create their own jokes on this one!) and to find "unhappy customers" and just make them "happy," HCL might find the European market not so simple after all. Additionally, even with the economic downturn, the SAP labor market continues to be very tight with everyone and their grandmother looking for high-end resources. It is quite possible that Axon will now become a major poaching target for talent, which will require HCL to demonstrate very quickly to Axon employees that working for HCL will make them "happy" too ;-)