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11/8/2006
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HP's New Outsourcing Chief: We Need To Boost Offshore Sales

The new head of HP's technology and business services group plans to create a sales team that will focus exclusively on selling U.S. customers on the benefits of outsourcing work to HP's technology centers in India.

To keep up with fast-growing offshore rivals, Hewlett-Packard is creating a sales team that will focus exclusively on selling U.S. customers on the benefits of outsourcing work to HP's technology centers in India, says the HP executive in charge of the effort.

"We want to push that part of our business more aggressively," says John McCain, whom HP named head of its $15.5 billion technology and business services group on Wednesday. McCain plans to soon unveil a dedicated sales team charged with increasing sales of services, such as software development and application maintenance, delivered from HP India. "I'm working on identifying a leader for that," says McCain. He added that he also may create a similar team to sell offshore services to HP customers in the United Kingdom.

McCain, 47, replaces former HP services chief Steve Smith, who left the company last month for undisclosed reasons.

Tech workers in India are paid anywhere from 40% to 80% less than their U.S. counterparts. As a result, costs for technology vendors operating in the country are considerably lower than at U.S. operations. Earlier this year, IBM announced a plan to invest $6 billion in India over the next two years to build out operations there.

IBM has more than 40,000 Indian employees, about twice as many as HP.

HP's services business is robust, accounting for about 18% of the company's total revenue. But it has seen little growth in recent quarters as more and more U.S. businesses outsource work directly to domestic Indian vendors or service providers whose primary operations are in India. "It's very late for HP to be recognizing what is a profound change in the global, competitive environment," says James Friedman, an analyst at Susquehanna International Group.

During the first three quarters of this year, HP's outsourcing business has posted a sequential compound growth rate of negative 0.02%. By contrast, India-centric rival Cognizant Technology Solutions posted a compound growth rate of 14% over the same period. Last week, Cognizant reported sales of $1 billion for the first nine months of 2006 and raised its full year revenue outlook to $1.4 billion.

McCain says HP won't significantly increase its operating capacity in India in the near term. "Our footprint in India is pretty good. I'm satisfied with our facilities there," he says. HP operates development and service centers in Mumbai, Hyderabad, Chennai, and several other Indian cities. What the company needs to do, McCain says, is increase sales at those locations. "The Indian firms are growing by leaps and bounds, and we want a bigger piece of that."

[Update: Nov. 9. Third paragraph was changed to correct reference to Steve Smith's departure.]

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