Tuesday, March 13, 2012
United States Information Technology outsourcing
Indian Information Technology services provider are gearing up for a slugfest with their global peers as large corporations in the United States and Europe country are set renew Information technology outsourcing contracts with a combined value of at least $19.5 billion this year.
As many as 686 outsourcing Information Technology deals with value of at least $25 million or more are due to expire in 2012, show data from Information Service Group, a Information technology market research company that owns TPI, the largest outsourcing advisory. At least 78 of these deals are worth $250 million each. The number of business and the combined value are "new records", say Mr.PaulReynolds who lead group of research for the ISG. Global Information Technology service providers including IBM and Accenture hold 37 % - by value - of the expiring contracts. This spells good news for Indian Information Technology company, as over the last couple years there has been an addeding trend of corporations choosing at least one India based company among their Information technology service providing vendors.
"For some peculiar reason in the market, there is large churn now," said, a senior analysts at HCL Technologies. "Before that, incumbent players continued because getting in a new vendor is not easy due to costs in outsourcing. Now every one in three deals that are up for renewal are going to new players in outsourcing market." A report by Standard Chartered pegs the value of new deals coming up for renewal this year at $47 billion. According to the report, at least $6 billion opportunity will come up for large offshore Indian vendors. "If there is a 30% churn that would mean $12 billion worth of new opportunity," the HCL Technologies spokesperson added. Over half of the deals are expected to come from Europe, in the Standard Chartered report. "Information Technology Market share gains in the renewal deal pipeline will be a key differentiator of volume growth across players in our view. Further deterioration in macro-economic environment remains a key risk to volume outlook," Standard Chartered analysts Mr.PankajKapoor and Mr.ApoorvaOza noted in Standard Chartered report. In the past few week, HCL has announced new contracts with oil & gas major Stratoil and telecommunications biggie UPM, pharmaceutical major AstraZeneca, in most cases replacing incumbents in deals which were for renewal in few week.
Other large Information Technology Indian outsourcing providers like Tata Consultancy Services too have had significant success in winning contracts where they replaced an incumbent transnational IT player. The company replaced CSC as the Information Technology services provider for Denmark's biggest telecommunications company TDC. Though the exact value of the deal is not known, the multi-year deal is pegged at well over $200 million, by industry insiders. "We expect renewal deal market will continue to open up for Indian outsourcing vendors," Mr.PankajKapoor wrote in the report. With prevailing uncertainty, the deal sizes are likely to be smaller, which could help Indian IT outsourcing vendors, especially the mid and small sized players. About 1/3 of Information technology services contracts expiring in 2012 have an application development and maintenance (ADM) component, an area where Indian IT services company are known for their strong competencies in the market. Other major services that are part of deals coming up for renewal are related to business intelligence, social media applications and enterprise mobility in endof 2012.
Mr.AnjanLahiri, president and CEO of mid-sized Information Technology service company MindTree's, says that though number of contracts have gone up, total Information Technology outsourcing is not going up. "This means companies are splitting up large contracts to smaller ones, which is a good thing," Mr.AnjanLahiri said. Over the last few years, multi-sourcing has been gaining strength as corporations look to work with more than one technology vendor.
However, having a larger services portfolio, the transnational technology company do have an advantage over the Indian Information Technology company. "The bigger the deals, the less cost competitive Indian companies are against the likes of IBM and Accenture," Mr.AnjanLahiri added. That a good chunk of deal renewals are happening in Europe and us, test the Indian Information Technology company ability to crack the continental European Information Technology outsourcing market. So far, Indian Information Technology company have managed to gain entry into Europe (UK) market but is yet to gain meaningful traction in large markets such as Germany and France.