Post the effect of the economic slowdown, renewal of outsourcing deals could be the next volume growth driver for Indian offshore players. The trend was evident in the last two quarters when growth was broad-based and came from across verticals rather than financial services alone as in the previous few quarters. Over 980 deals are due for renewal over the next four years, says a report released by Standard Chartered Equity Research.
“We expect market share gains from incumbent local/global system integrators in the annuity-based outsourcing deals due for renewal to be the next volume growth driver for Indian offshore players. We estimate a pipeline of at least 980 such IT deals worth over $204 billion over 2011-15,” states the report.
Naturally, tier I players are expected to be in a better position compared to mid-size players to face future challenges including rupee appreciation and wage hikes. Large players will be able to absorb up to 10 per cent appreciation of the rupee and about 12 per cent annual salary hike over the 2011 to 2013.
Gordon Coburn, chief financial and operating officer, Cognizant says: “Over the last few quarters, our growth was broad-based — across industries, service lines and geographies. We have seen two consecutive quarters of double-digit sequential revenue growth (compared to the single-digit growth in the previous quarters).”
Tier I players will see volumes grow at the annual rate between 23 per cent and 26 per cent over the next two years. The opportunity in deal renewals will translate into a $22.3-billion opportunity given the assumption that the contract values are in the range of $50 million to $250 million.
According to Stephanie Moore, chief marketing officer of UST Global services, the multi-million-dollar contracts are a story of the past. Deals sizes have gotten normalised at the $50 million to $100 million range and they are not going to get bigger anymore. Prior to joining UST over a year ago, Moore was vice-president and principal analyst at Forrester research. The near future growth for incumbents will come from extension of existing contracts that have been running over the last decade, she adds.
Source:http://www.mydigitalfc.com/it/renewal-outsourcing-deals-will-drive-it-sector-783
