Indian IT gears up as contracts of $113 bn up for renewal

Pune, 5 April-2014, Shivani Shinde Nadhe(BS): Indian companies might end up with a smaller slice as more information technology contracts get restructured, warn analysts. Recently, Bharti Airtel restructured a $2-billion deal and infotech companies TCS, Wipro and Tech Mahindra gained. But this may not be the norm.

Indian IT gears up as contracts of $113 bn up for renewal

Wipro Floating learning Centre, Electronic Cit...

Wipro Floating learning Centre, Electronic City 2, Bangalore, India. (Photo credit: Wikipedia)

According to data from ISG, a company that tracks outsourcing, $112.95 billion of infotech contracts are due for renewal in 2014. The share of Indian vendors in this is 16 per cent, a business opportunity of about $18 billion. Over the next three years, India’s share in the renewal market will range between 16 and 18 per cent, ISG says.

Analysts point out Indian companies need to be cautious because they are the big players in several contracts coming up for renewal. Break-down deals that divide work among vendors have become a trend in the sector.

“We have been saying for some time that deals are getting smaller. Customers are looking at best-of-breed vendors and they prefer to divide work among vendors who are good at certain applications,” said Siddarth A Pai, partner and president, ISG Asia Pacific.

“Almost two-thirds of the market is restructuring. If you look at application management, Indian services providers have increased their share consistently. But in infrastructure management they are now, in several cases, the incumbent players,” Pai added.

The Global ISG Outsourcing Index (formerly known as the TPI Index) shows the annualised value of contracts restructured in 2013 was $7.5 billion. Though the value dipped by 2 per cent, the number of deals climbed by 22 per cent.

Talking about the IBM-Bharti deal, Manish Bahl, country manager for Forrestor Research, said, “We expect large deals broken into smaller parts with reduced tenure.

Clients are looking to bring more suppliers into the system to encourage innovation and to get the best out of the each vendor. Also, they want to commit for a lesser period to their vendors.”·

“I believe Indian infotech services players are well placed as large deals get split into multiple contracts. They may face competition from smaller and niche players that could disrupt the marketplace with their ability to connect digitally with customers. Enterprises will be willing to assume the risk of working with new vendors,” added Bahl.·

Pai pointed out deal restructuring did not mean the incumbent vendors would lose, but it offered an opportunity for others to walk in. “Smart providers would have started discussions at least six months before contracts expire,” he added.

According to Forrestor Research, rising customer expectations coupled with a tough economic situation in India has forced telecom companies to look beyond the subscriber base to improve their bottom lines. “While Airtel views IBM as a strong established infotech partner to run and manage infrastructure, the operator appears to be in need of new business technology partners to help engage customers with the ultimate goal to serve and retain them,” said Bahl.

Posted by on April 5, 2014. Filed under Economy. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.