Domestic vs Foreign companies heating up.
Bureau Report
BANGALORE: The battleground for information technology (IT) outsourcing contracts is set to heat up this year between domestic and foreign software firms, as companies like International Business Machines Corp. (IBM) and Accenture Plc. attempt to prevent losing more outsourcing projects to Indian vendors.
Top executives at Tata Consultancy Services Ltd, Infosys Ltd, Wipro Ltd, Cognizant Technology Solutions Corp. and HCL Technologies Ltd are gearing up for an intense battle, both against the foreign firms and each other, for outsourcing contracts collectively worth more than $100 billion that are up for renewal this year, according to estimates provided by outsourcing advisory Everest Group, reported Live Mint.
Two contract renewals likely to be hotly contested are of Australia’s largest phone company Telstra Corp. Ltd and the world’s biggest consumer healthcare products company Johnson & Johnson , according to several outsourcing experts and industry executives, says the report.
Telstra signed IT outsourcing agreements with Infosys, Hewlett-Packard-owned Electronic Data Systems Corp. (EDS) and IBM in 2009 for five years, and discussions for their renewals have already begun. The contracts, originally worth about $1 billion, are expected to be bid for at least $1.5-2 billion, the outsourcing experts said.
The renewals come at a time when seasoned customers of Indian IT services are more open to switching vendors, as increased competition for re-bids often tend to lower pricing and boost margins, said Peter Bendor-Samuel, founder and chief executive of Everest Group, in a telephone interview to Mint.
Telstra, which had about 10 million domestic mobile subscribers at the time the deal was signed, currently has 14.4 million mobile phone customers in Australia—more than three-fifth of the country’s population—and is trying to cut costs as it battles high smartphone and hardware costs.
Much is at stake for large Indian software companies like Infosys, which has grown at a sluggish pace the last two-three years compared with rivals like TCS and US-based Cognizant that have consistently outdone estimates for revenue growth and are seen as the new sector flag-bearers. Telstra has been a client of Nasdaq-listed Infosys since 2003, said the report.
For IBM, holding on to this contract will be crucial, after a separate outsourcing services deal it had with Telstra was scrapped and given to Infosys in 2009. IBM recently also lost outsourcing contracts from US health insurer Wellpoint Inc and financial services provider India Infoline Ltd.
Another company with plenty to lose is Hewlett-Packard Co., the world’s largest personal computer maker that also provides software services. HP recently lost deals to TCS and HCL Tech and experts say the company run by Meg Whitman will be more aggressive in protecting its own turf and going after other contracts.
Companies like Telstra and J&J often tend to rebuild the structure of their contracts, breaking them into small pieces and handing them out to multiple vendors, experts say.
Other large telecom deals for which renewal talks have begun include Bharti Airtel Ltd’s 10-year contract with IBM, estimated to be worth $2.5 billion now, and Uninor’s outsourcing agreements with Wipro, said Mint.
Johnson & Johnson’s outsourcing contract with top Indian service providers, including Wipro, is also being keenly tracked by the sector. Although the exact value of the J&J deal is unknown, it is estimated to be worth at least $1 billion, according to the outsourcing experts. Discussions for the renewal due next year have begun.
The Johnson & Johnson contract renewal comes at a time when the North American healthcare outsourcing market presents significant opportunities for the Indian IT sector, with US President Barack Obama’s push to overhaul the healthcare system to include 30 million more Americans, said the report.