Indian IT to battle IBM

Indian IT to battle IBM, Accenture, Hewitt over $12 bn deals

BANGALORE/MUMBAI/NEW DELHI: Indian technology vendors will lock horns with multinational rivals IBM , Accenture and Hewitt to gain a share of the back-office outsourcing contracts worth $12.2 billion, set to expire next year.

According to Jens Butler, principal analyst at Ovum , Microsoft’s $200 million cred IT and collection services deal with Accenture and Canadian brewer Molson’s over $60-million BPO contract with H-P are among the top contracts where existing vendors will face a bidding war from challengers in 2011.

“While recovery from recession is likely to continue at a slow pace, the way the BPO market will address the changing needs and desires of potential customers will be more rapid,” said Patrick O’Brien, principal analyst at Ovum.

“Outsourcing back-office processes were once seen as radical, aggressive move based entirely on Indian labour arbitrage. But the market has become more complex and nuanced,” he says.

As top outsourcing customers come out of recession, they are increasingly pushing to give more work to fewer vendors at lesser rates. And to put pressure on existing vendors, these customers are asking them to bid against aggressive challengers, who are ready to offer discounts for gaining an entry.

Ovum has details of 207 BPO deals, or IT service deals with a BPO component, that will expire in 2011, totalling $12.2 billion in contract value. This is up by 15% over the $10.6 billion value of the 201 con-tracts that were due to expire in 2010.

However, unlike IT services contracts where customers can switch vendors frequently, BPO deals are difficult to rejig. “Disengagement in BPO is tougher than in IT deals. It takes six to nine months for a process to stabilise in a BPO transaction,” says Pramod Bhasin, president and CEO of Genpact, which counts GE among its top clients.

Ovum says the largest opportunities in expiring contracts are in the manufacturing (31% of total contract value) and banking (24%) industries. Telecommunications (6%), as well as both local (9%) and central government (6%) also represent significant opportunities.

“The competitive landscape has changed dramatically and the capabilities of vendors have improved while more locations are positioning themselves for BPO work, opening up new low-cost possibilities in multiple languages,” said O’Brien of Ovum.

Meanwhile, outsourcing advisory firm TPI also says customers are opting to restructure some contracts even ahead of expiry dates. Restructuring, which include renegotiations, renewals and extensions of outsourcing contracts, represented 48% of the global market for the September quarter and have been a key factor influencing results across the industry year to date, TPI added.

Large IT services vendors including IBM, TCS , Infosys and Wipro are able to bundle a software application development project with BPO and seek more work at lesser rates.

However, standalone back-office firms such as Genpact say customers are still seeking to work with different vendors for IT and back office projects. “Over 70% of BPO business is sourced from a single vendor without any competitive activity. And if this bundling was indeed the case, then there would have been no room for vendors like Genpact,” argues Bhasin of Genpact.