Monday, November 17, 2008
And yet those six men, sharing a single phone, built an ambitions dream because they believed that they could “pick up the microprocessor and change the world.”
It was a bold vision for an Indian company in the late 1970s. The company in question is HCL, and the words themselves those of co-founder and CEO Ajai Chowdhry, reflecting on the 25-year milestone his company recently reached. It is a quarter century of growth that virtually mirrors the history of Indian IT, and offers a perspective on what could be in store for the future.
Early Days
Chowdhry and his co-founders dreamed of creating a computer company, and the microprocessor had just come out. But India in 1976 wasn’t exactly the kind of environment where Bill Gates, or Steve Jobs, were able to grow from garage to greatness. To start a company, a license was required. Furthermore, bans on importing goods meant that an Indian computer maker had to build its products almost entirely from the ground up.
To gain some experience and build capital, the founders started a company that marketed personal calculators, as they planned their entry into the modest scientific computing market in India.
Finally, Chowdhry and his colleagues — who now numbered eight — got a government license and incorporated what was called a “joint sector company,” calling it Hindustan Computers Limited. They built a four-bit computer designed around a processor available from Rockwell at the time, and set out to sell it to engineering colleges and research institutes.
Chowdhry remembers the “startup pangs” the young company experienced. In August 1976 it was decided that, given capital constraints, if a product couldn’t be delivered by March 31 of the following year, HCL would have to shut down. The first product was delivered on March 27.
Though the opportunity was small in scale at first, Chowdhry speaks passionately about the ambitious early days of the company. “We wondered if we could start the company in one city like Delhi, but we decided we should start it all over the country. So two people went to Calcutta, one person went to Bombay, and we started the company in all places at the same time.” The team offered jobs to three more people, and paid them the highest salary possible for graduates of the IIM. These recruits were earning more than the founders. Says Chowdhry, “we picked up a bunch of young people and put their minds on fire.”
Crazy Days
By 1977, after limited success with their early product, HCL was looking to get into the commercial marketplace. These were, in Chowdhry’s words, “crazy days” in India. The politics of the day meant that foreign companies were compelled to reduce their holdings. As a result, global brands like Coke and IBM were asked to leave the country.
Chowdhry is the first to acknowledge that HCL has long suffered from the questionable policies of India’s government. But in this case what was probably a shortsighted overall economic vision was just what HCL needed to find success.
The company’s first commercial computer was very successful, thanks to its privileged position in the marketplace.
By 1980, with only a million and a half dollars in annual revenues, HCL took the bold step of moving into Singapore to sell hardware. At the time, the founders were starting to see the value of software in the technology environment of the day. HCL set up India’s first software export factory in Chennai. The technical infrastructure of the day was very poor. There were no satellites, and the company was sending floppies back and forth between India and Singapore.
It didn’t work. “It was too early for its time,” Chowdhry recalls. The venture was shut down, but the early 1980s became a prolific period of growth for HCL. It was also a time that marked the birth of a few future IT stars. Infosys started out in 1981.
But the market was still very thin. Realizing that in some sense it had to create the PC market that it was feeding in India, HCL set up an IT training division to teach people how to use technology products. That has since ballooned into a key part of the overall company’s business in the shape of an independent public entity, NIIT.
HCL even went into the office automation and telecom product market. But it was its introduction of Unix products to India, with Unix source code from AT&T, that set the company on a more ambitious growth path.
In the late 1980s, when India was still very much a closed market, HCL took the major step of trying to enter the U.S. to go after the tough hardware market.
It was a time when taking money out of India to start overseas operations was essentially prohibited. HCL had the odds stacked against it when it went through the Reserve Bank of India to get a tiny authorized amount of capital out of the country. One can well imagine the reception that the HCL team got when they showed up in the U.S., struggling with Indian export laws, trying to sell their multiprocessor Unix-based machines. Chowdhry remembers with some amusement the skeptical response of American customers, when faced with a vendor from India. “It was a crazy thing in those days,” he remembers.
Chowdhry and his team targeted the OEM market, and he insists that American customers saw the value and technical strength of their offering even then. But it quickly became evident that fighting it out in the hardware market was not the way to go.
They were in the wrong business. U.S. companies didn’t really want Unix hardware from India, they wanted help with Unix software capabilities. This realization, and the subsequent change of strategy by HCL, marks one of the earliest examples of software consulting by Indian firms in global markets. Today HCL derives 75 percent of its revenues from software.
Global Challenge
If the closed market in India gave HCL its first opportunities in the early days, the negative effects of earlier global isolation have far outweighed the immediate dividends. Chowdhry claims that HCL developed a relational database product before Oracle did, but killed it.
Asked why the product was abandoned, he says: “We killed it because it was before 1984 when India opened its market to technological transfer, so that you could actually import technology. Before 1984 India alone was too small a market to continue to develop the product.” But then Chowdhry adds, “We were naive. We were just not exposed to the international market in those days.”
Becoming a global company in the early 1980s in India was a massive challenge. HCL developed client-server architecture early, and developed a RISC Unix product even before Sun and HP. In Chowdhry’s words, “What was missing was international marketing, being available in different countries and knowing about being a global company.”
This is a handicap that Chowdhry constantly refers back to. HCL couldn’t grow fast, in his eyes, because India’s economic policies of the day held them back. Of course things have changed. Today HCL is a global company with annual revenues of a billion dollars. So are its top India-based competitors. In 1991, as economic reforms were taking shape in India, the company entered into a joint venture with Hewlett Packard. According to Chowdhry, this was to help HCL “learn to be a global company.” HP’s equity in the venture was bought back by HCL in 1997.
A New Era
“I believe we have just started,” says Chowdhry — an interesting comment coming from a “veteran” of the industry.
Chowdhry praises economic reforms, but believes they are happening much too slowly. He suggests that open markets will give India vastly more powerful opportunities in IT than were offered to the pioneers of the industry.
Chowdhry is bullish despite claims that Indian software services giants like HCL, Infosys, Wipro, and others will struggle in the coming quarters, and the generally held belief that there aren’t many good product startups in India yet.
“As a country we’ve just scratched the surface,” says Chowdhry. The road ahead promises bigger things than have emerged in Indian’s IT sector in the past 25 years. But new challenges will arise, and success for Indian IT is by no means a self-fulfilling prophecy.
Just as in 1976, large-scale success in the newer more open market will start with fearless innovators, ready to defy all pre-conceived notions.
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