In a market where growth is not exactly the buzzword, the Indian IT services companies can now look forward to getting their share of the pie in the numerous billion dollar plus outsourcing deals that will come up for renewal in the next three to six months.
There are over a dozen IT outsourcing deals valued in excess of $1 billion generally in the hands of single vendor like IBM, HP, Accenture, CSC coming up for renewal and this time it will be thrown open to further competition.
According to market observers, there is the long-term outsourcing deal of Procter & Gamble (P&G) with Hewlett Packard (HP) that will come up for renewal in April-June, 2013.
Similar such deals are the Bank of America with HP coming for renewal in January, 2013, Unilever-Accenture in June, 2013 while of similar value is expected from others such as Pfizer, British Telecom, US Department of Homeland Security, and UK ministry of defence.
Sid Pai, partner and managing director, TPI India, a sourcing advisory firm, said, ?There are several such deals. By one count we performed last year, we said that there were hundreds expected to come to the market in the next couple of years.?
According to Information Services Group (ISG) and TPI Index, in 2011, there were 570 contracts for renewal, this year the number has grown to 690 contracts.
These billion-dollar deals, of long-term relationship spread over 8-10 years with a single vendor, were signed during the time when the leading Indian IT companies like TCS, Infosys and Wipro were smaller in size.
Today, the scenario has completely changed with many of Indian companies turning into multi-billion entities and able to meet head-on with global giants such as IBM, Accenture, HP or CSC.
Dr Pradeep Mukherji, president and managing partner, Avasant Asia, an IT-BPO advisory firm, said, ?Earlier these 7-10 year contracts typically used to go to a single vendor like IBM or HP, but today clients have more choices. There are specialised vendors in areas like SAP, help desk, who can offer niche services. Customers today can bargain and get a better rate because there are more options in the market.?
The large deals that are coming up for renewal will be broken up into multiple parts to be given to different vendors in what is called as ?best of the breed contractors? strategy.
Pai said, ?Best of breed sourcing is now de rigueur and clients have moved to a multi-vendor model. As such, clients have been dividing up scope among vendors for a while now. Average deal sizes are now much smaller, and we hardly ever see any mega like billion-dollar plus deals.?
The current situation provides a perfect opportunity for the Indian vendors to try and get in more deeply into accounts such as Pfizer or Unilever, which were hitherto not their strength. Though some of clients are being serviced by the Indian companies, they were never doing any core activity and it was largely restricted to certain peripheral work.
However, these contracts also come in with their own set of challenges. The CFO of a large Indian IT company, on condition of anonymity said, such deals often come with a lower price tag as they are long-term deals and there is scope for garnering additional work.
Today, the Indian IT companies have become more flexible in terms of pricing and willing to absorb these discounts in return for greater volume of business.
According to Dr Mukherji said, Indian IT vendors are better positioned in areas such as software application space, security, data maintenance, and remote infrastructure management but are still not prepared to make any capital investments in such deals.
