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HCL Tech Fixes Procurement Deal of $138Mn with Volvo’s IT Business

HCL Technologies

HCL Technologies announces that it has fixed deal to procure the external IT business of Swedish auto maker Volvo Group. The deal signed in October 2015, is known to have settled for $138 million (Rs 895 crore) and the ROI from the deal is estimated to be $1.75 billion over the next five years making it one of the largest contracts in recent years.

Volvo’s external IT business, which serves around 40 customers in the Nordic and France regions, fetches revenues of around $200 million a year. Apart from gaining access to the IT outsourcing works from external clients, HCL Technologies would also provide services to the Volvo Group as the sole global vendor, which is estimated to fetch the company around $750 million in revenue over five years.

The deal will supervise 2,500 employees of Volvo group including 200 in India to join HCL Technologies.

“The Volvo Group employees and consultants will add great value for our customers with the skills and expertise that they bring,” said Anant Gupta, president and chief executive officer of HCL Technologies.

While HCL did not comment on the contract size, the company termed the deal one of the largest IT agreements signed by any Indian IT firm, and a first in the sector to use the principles of ‘vested sourcing’. Vested sourcing is a business model in which both the outsourcing company and the service provider focus on shared values and goals to create an arrangement that is mutually beneficial to each.

According to HCL Technologies, it would deliver on a technology transformation roadmap spanning 3,500 applications, 20 data centres, 11,000 servers, 12 petabyte of storage, 20,000-plus MIPS (microprocessor without interlocked pipeline stages) of mainframe capacity and 15,000 network devices. As part of this roadmap, HCL would also provide 65,000 end users of Volvo with access to productivity and user enablement solutions such as Microsoft Office 365.

The relationship will enable HCL to create an automotive Centre of Excellence in Gothenburg, based on the domain expertise of the Volvo team, to serve HCL’s global automotive and manufacturing customers.

“Combining the strengths of HCL with those of the transferred parts of Volvo IT will result in an organisation with formidable capabilities and an intimate understanding of Volvo Group needs and opportunities. This, and the cultural fit between our two organisations, is the foundation for a partnership that will provide long term and strategic benefits for the Volvo Group,” said Olle Högblom, chief information officer of the Volvo Group and president of Volvo IT.

According to industry experts, HCL Tech’s engagement with Volvo is a classic example of how global majors are outsourcing their entire IT operations to third-party service providers to focus on their core businesses.

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