Xerox turns into a leaky account for HCLTech and TCS

Even TCS has been affected by the same account.  (Image: Reuters)

A $1.3 billion outsourcing deal from Xerox bagged by HCLTech, the third largest Indian IT service firm, in 2019 seems to have become something of a concern for the latter.

From seeing disruption during the pandemic and contractual work taken away by larger peer Tata Consultancy Services (TCS) to revenue leakage, this account has been under stress for HCLTech since the pandemic. Even TCS has been affected by the same account.

The digital printing company has a shared services arrangement with these two Indian IT services firms. As per regulatory filed documents, the firm’s contractual cash obligations towards both HCLTech and TCS for 2023 totalled $296 million.

However, the Indian vendors could together secure only about $227 million from the US-based workplace-technology company – short of almost $70 million from their expected revenue for the same year.

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In March 2019, as part of “Project Own It”, Xerox entered into a shared services arrangement with HCLTech, pursuant to which it transitioned certain global administrative and support functions, including selected finance functions, from Xerox to HCL.

This transition was expected to be completed during 2020. However, it was delayed due to the pandemic. Xerox’s “Project Own It” is a transformation project centred on creating a more effective organisation to enhance focus on its customers and its partners and was initiated during the second half of 2018. The project delivered $2.2 billion of cost savings between 2018 and 2022 for Xerox.

However in July 2021, Xerox entered into another arrangement with TCS and outsourced finance processes that were being provided by HCLTech. The reason for the transitioning was that it wanted all of its finance business processing outsourcing services to be provided by one vendor. At that time Xerox also said that the transition wouldn’t impact its minimum revenue commitments to HCLTech. Xerox’s arrangement with TCS is initially for 6 years with a total contract value of approximately $163 million.

Saurabh Gupta, president, research and advisory services, HFS, said that the 2019 deal was signed on the back of a long-standing relationship between Xerox and HCL that was focused on engineering services. “The finance & accounting (F&A) BPO scope of the 2019 deal is not something that HCL is known for compared to TCS which is a market leader in the space.”

Gupta opined, “On the back of TCS Cognix and other tech assets, TCS can potentially help transform Xerox’ F&A versus HCL where horizontal BPO services are not core to their go-to-market.”

Similarly, Xerox’s contractual cash obligations towards the Indian IT vendors were about $251 million in 2022. But the two IT vendors’ cumulative revenue was $220 million in the same year. In 2021, Xerox incurred net charges of $207 million, and in that year the company’s cost for vendors’ work was more than what it committed ($196 million) for 2021. Mails seeking comments from Xerox, TCS and HCLTech didn’t elicit response till the time of going to press.

Xerox has been a client for these two top-tier Indian IT firms and has been of late found struggling to adjust to the digital age as demand for ink and print documents has fallen. In January this year Xerox said that it was cutting 15 percent of its work force as part of its effort to shift focus to its business services offerings and away from its photocopier machines.