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.
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.