Archive for September, 2015

Multi-billion dollar opportunity awaits India IT companies

September 1st, 2015

Several outsourcing contracts worth at least $1 billion (about Rs 6,500 crore) each from companies such as US retailer Gap and British telecom firm Vodafone are coming up for renewal over the next one year, providing an opportunity to home-grown software exporters such as Tata Consultancy Services and Infosys to grab the deals from incumbent multinational rivals such as IBM and Hewlett-Packard and further increase market share over these companies.Outsourcing35

According to data from outsourcing advisory ISG, at least six such deals are set to expire in 2016. Further, another nine deals with a total contract value of at least $500 million each from customers such as Arcelor-Mittal and BAE Systems will also come up for renewal during this period.

According to the report, about $250 billion worth of deals are set to be renewed over the course of the next 36 months.

“The increasing number of contract expirations each year directly results from specific market trends. We’ve seen the number of outsourcing transactions increase dramatically over time. At the same time the average duration of contracts has declined. As a consequence, contract expirations are occurring at a faster rate,” said Dinesh Goel, partner and India head at ISG.

Even as IBM and HP are expected to strive to renew these contracts, India’s top outsourcing firms fancy their chances, having already grabbed significant market share from their multinational rivals over the past five years.

According to another ISG report, Indian IT firms increased their share of the market to 27.1% during January-June, from 23.6% a year ago. This gain came at the cost of European rivals such as Capgemini and Atos, according to the report.

Executives from both Indian and multinational firms are currently eyeing Vodafone’s $1 billion contract with IBM which is set to expire early next year. Preliminary discussions to renew the contract have already started, according to executives involved in the deal.

“There is no question that incumbency isn’t what it used to be – the non-incumbent win rate on competitive restructuring and renewal deals stands at over 60%,” said Goel. “India-heritage firms have been the significant beneficiaries of this trend as a winning provider. But going forward, they have their own turf to protect as an incumbent provider of large expiring deals.”

Indian IT firms have aggressively snatched large contracts by adopting tactics such as heavy upfront payments while bidding for large billion-dollar outsourcing deals and also using price to undercut rivals.

At a time when investors are worried about the economic slowdown in China triggering a global meltdown and with technology spending set to drop at least 5.5% this year, India’s top IT services firms will chase these upcoming deals even more aggressively, executives said.

Source:http://telecom.economictimes.indiatimes.com/news/enterprise/enterprise-services/multi-billion-dollar-opportunity-awaits-india-it-companies/48744239

IT outsourcing remains healthy, but the functions being outsourced are changing

September 1st, 2015

Companies are increasingly farming out functions such as IT security and application hosting, according to a report from analyst firm Computer Economics.Outsourcing34

The company interviewed over 130 companies in North America for its report, IT Outsourcing Statistics 2015/16, asking them about their outsourcing practices. Overall, it found that outsourcing is keeping pace with a rising overall IT operating budget.

Median IT budgets rose 3% in the last year, and outsourcing continued to account for a tenth of that money overall. Large companies continue to be the leaders in outsourcing, spending a median average of 7.8% of their IT budgets on it. This compares to 6.7% for mid-range companies and 3.7% for small firms.

Under the covers, though, the functions being outsourced are changing. IT security outsourcing is increasing, as are web/ecommerce systems and application hosting, according to Computer Economics.

Application hosting is the most popular function to outsource, with 62% of organisations doing it, and two thirds expecting to do more so in the future.  The rise of SaaS is a big contributor to application hosting, the report suggested.

Not all IT functions are being outsourced at the same rate. Datacenters and database administration are  all flat, as is application development.

The percentage of work application development work farmed out by companies is typically low, and often project-based, the report suggested. The median average of a firm’s total application development work that it will farm out is around a fifth.

Customers just aren’t that happy with the service from application outsourcing providers. A third of those who outsource application development found the service worse than doing it in-house, while 42% found it the same.

Cost certainly isn’t a driver either. Fewer than one in five organizations who outsource application development work (17%) save money on it. In fact, 58% of them find it costing more.

The outsourcing of network operations and disaster recovery is also flat. That’s odd, because disaster recovery is one of the IT functions that the report says has the biggest potential for reducing costs through outsourcing. Another is desktop support.

Expect to see outsourcing increasing gradually over time, concluded the firm, as the adoption of cloud computing continues.

One reason for the general health of IT outsourcing could also be that it’s simply too difficult to find the staff. Canadian firms have resorted to temporary workers to fill the IT talent gap.

Some companies have also been found replacing Canadian workers with foreign ones in a bid to cut costs, sparking outrage. In 2013, RBC was found to have bought in IT workers from India via outsourcing company IGATE. The firms had been working together since 2005, it was revealed.

Since then, the Canadian Government has clamped down on workers entering the country under its Temporary Foreign Worker program. Perhaps this could also fuel the growth of outsourcing contracts over the next few years?

Computer Economics looked at 132 north American organizations with at least $50m in annual revenues, or $2m in IT operational spending.

Source:http://www.itworldcanada.com/article/it-outsourcing-remains-healthy-but-the-functions-being-outsourced-are-changing/376814

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