HP to bring Indian software subsidiary onboard

By John Ribeiro

IDG News Service (Bangalore Bureau)

Hewlett-Packard Co. (HP) announced Sunday its decision to make an offer to buy the publicly held shares in Digital GlobalSoft Ltd., its software development and services subsidiary in Bangalore.

The move by HP brings its software development model in India in line with that of other information technology multinationals who have typically set up wholly-owned software development subsidiaries in the country.

HP currently owns 50.6 per cent of the equity of Digital GlobalSoft which is listed on Indian stock exchanges. After the purchase of the publicly held shares, Digital GlobalSoft will be delisted from the stock exchanges, Balu Doraisamy, president of HP India said.

This move by Palo Alto, California-based HP reverses its June decision to merge its own wholly-owned software development operation in Bangalore, called HP Services’ India Software Organization (HPS ISO), with Digital GlobalSoft, which besides doing work for HP was also doing software development for HP’s customers and other clients.

According to the June plan, Digital GlobalSoft was to be the focal software development organization in India for HP, although it would continue to be a listed company.

“Having software development done by a company like ours that operates in a competitive environment and is accountable to local shareholders, with a focus on both the top line and the bottom line growth of the company, was thought to be a more efficient and cost-effective model than to have a software development operation in India as a cost centre alone,” Som Mittal, president and chief executive officer (CEO) of Digital GlobalSoft said after the June announcement.

HP’s reversal of its earlier decision in June has been done with an eye to improve operational efficiency, according to Doraisamy.

“HP doesn’t want a listed subsidiary in India because then it will be accountable to two sets of shareholders HP’s own shareholders, and those of Digital GlobalSoft,” added Doraisamy. “Having a local listed subsidiary is cumbersome, as the business model, the pricing and the margins of the business are dictated by the interests of the local shareholders.”

Digital GlobalSoft was set up in 1988 as a joint venture between Digital Equipment Corp. (DEC) in Maynard, Massachusetts and Indian promoters, as Indian government rules required foreign companies wanting to sell in India to set up manufacturing joint ventures. The joint venture was then called Digital Equipment India Limited (DEIL).

After Compaq Computer Corp in Houston acquired DEC in 1998, it converted the joint venture, renamed as Digital GlobalSoft Limited, into a software development subsidiary, and moved its sales operations to a wholly owned subsidiary, as the rules of the Indian government on multinational sales and marketing operations had changed in the 1990s.

When HP acquired Compaq in 2002, Digital GlobalSoft became an HP subsidiary.

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