IT contracts worth $13 billion up for renewal this fiscal year

April 16th, 2015 by Rahul Jain No comments »

Multi-billion dollar IT contracts are gearing up to be renewed. Due to this, one can expect a tough fight between Indian IT companies and global names Outsourcing26such as HP and IBM. Ovum, London-based IT research firm has made an estimate that $13 billion worth of contracts will be renewed this coming fiscal year. This will include the $3.7 billion IT outsourcing contract of NHS (National Health Service). The primary vendor of the contract is US-based CSC.

According to a Times of India report, an IT analyst at Ovum, Hansa Iyengar said a large number of these upcoming deals have a big infrastructure component. She said, “We have anecdotal evidence of Western incumbents walking out of the deals as they perceive them to be too risky for the given contract values and these are some of the deals that the Indian vendors are picking up.”

Contracts on such a large scale are usually not given to  a single entity any more, as clients choose to opt for multiple suppliers. Indian IT companies are known to lower their prices in order to win big contracts. But for this to not affect their margins, they employ automation tools as well as tweak their onsite-offshore ratios.


IT firms may post muted dollar revenue growth

April 14th, 2015 by Rahul Jain No comments »

India’s software services companies may see a drop in dollar revenue growth, primarily because the dollar strengthened against other major global currencies in the three months ended 31 March, even as analysts say that these firms will fare better in the June quarter because of an expected increase in spending by clients.Outsourcing25

The major global currencies, including the euro, depreciated 4-10% against the dollar in the March quarter and this development is expected to hit dollar revenue growth of the top five IT firms by 200-250 basis points (bps)over the December quarter.

One basis point is one-hundredth of a percentage point.
Indian IT firms earn about 30-40% of their revenue in currencies other than the dollar.

In a 1 April note, Kotak Institutional Equities Research, a division of institutional broker Kotak Securities Ltd, analysts said that they expect a “muted 2-3.8% quarter-on-quarter constant-currency revenue growth for IT” in the “seasonally weak March quarter”.

Constant currency takes the average currency conversion rates from the preceding quarter.

“Organic (other than the revenue from recent acquisitions) sequential revenue growth in dollar terms is expected to be between -1% and +1% for top five IT firms,” said Hitesh Shah and Abhishek Gupta of IDFC Securities Ltd, in a note dated 28 March.

Kuldeep Koul and Bhrugesh Parsawala of the brokerage firm ICICI Securities Ltd, in a 31 March note, forecast aggregate sequential revenue growth for the top five IT vendors to be about 2.5% in constant currency terms, and about 0.2% in dollar terms “given the cross-currency headwind” of about “230 bps on an average”.

The analysts also attribute the slowing growth to deceleration in large segments like banking, financial services and insurance (BFSI), retail and energy, delays in projects taking off at the beginning of the calendar year, and the harsh winter in North America that has resulted in lost productivity.

Since IT budget cycles of clients follow the January-December cycle, and budget allocations take place in the first couple of months, IT spending picks up as the year progresses.

Ahead of its March quarter earnings announcement on 16 April, India’s largest IT software services company Tata Consultancy Services Ltd (TCS) has toned down the street expectation after its analyst briefing on 5 March. Tech Mahindra Ltd and HCL Technologies Ltd have indicated weak margins.

A Bloomberg poll of 27 analysts has estimated TCS’s sales at $3.94 billion and 26 analysts estimated profit at $867 million in the March quarter.

According to the Kotak note, HCL Technologies and TCS will lead the pack with 3.8% and 2.5% constant currency growth, while Infosys Ltd and Wipro Ltd will post another steady quarter with 2% and 2.1% constant currency revenue growth, respectively.

“Tech Mahindra would lag with flattish revenues in the CC (constant currency) terms on an organic basis (excluding the revenue from Lightbridge Communications Corp., acquired in November 2014),” said ICICI Securities’ Koul. “For Infosys, we project CC growth of 2.5% QoQ which, if delivered, will be a marked improvement from the 0.8%, -2.1%, 1.7%, and -0.4% growth in CC terms reported by the company in the fourth quarter of FY11, FY12, FY13, and FY14, respectively.”

Koul noted that Tech Mahindra’s margin could narrow by 170 bps over the preceding quarter, while HCL Technologies may see its earnings before interest and taxes (Ebit) margin decline by about 100 bps over the preceding quarter due to wage hikes coupled with the cross-currency headwinds.

Tech Mahindra’s acquisition of Lightbridge Communications Corp. and SOFGEN Holdings Ltd (acquired in early January) is also expected to contribute 5.7% (about $53 million) to reported dollar revenue growth, according to Shah of IDFC Securities.

Small and mid-cap companies are also expected to deliver weak results. According to Koul, Persistent Systems Ltd is expected to deliver dollar revenue growth of 3.5% QoQ, against the company’s prior expectation of 10%. While Mindtree Ltd and Mphasis Ltd are likely to post flattish dollar revenues, Cyient Ltd’s revenue in the dollar terms is expected to decline by 4.6% QoQ, he added.

Meanwhile, analysts are being “moderately optimistic” about the June quarter but continue to remain cautious about currency fluctuations.

“We expect management commentary to be a blend of optimism (discretionary spend in the US and outsourcing pipeline in Europe) and caution (impact of commodity price decline, volatile currencies and slower decision-making due to mixed macro indicators),” said Shah and Gupta of IDFC Securities in the note. “We expect most of the companies to indicate low-teens growth in FY16, which would be in line with software lobby body’s forecast of 12-14% for the financial year ending 31 March,” the note said.


Airbus Commits $2bn to Indian Outsourcing

April 14th, 2015 by Rahul Jain No comments »

Airbus has disclosed plans to raise its outsourcing spend in India to $2 billion, shortly after Indian Prime Minister Narenda Modi visited its offices as part of an international trip to France.Outsourcing25

Modi’s trip was, in part, motivated by his desire to promote his country’s new ‘Make in India’ initiative. Airbus SAS, an aircraft manufacturing division of Airbus Group, is based in Blagnac, a suburb of Toulouse in France.

‘We are honoured to host Prime Minister Modi in Toulouse and convey to him our desire to forge a stronger industrial bond with India. India already takes a centre-stage role in our international activities and we want to even increase its contribution to our products,’ commented Tom Enders, Airbus Group CEO.


Infosys CEO Vishal Sikka overseeing 1,000 top outsourcing projects to improve revenue

April 14th, 2015 by Rahul Jain No comments »

InfosysBSE 0.26 % chief executive Vishal Sikka has started personally overseeing about 1,000 customer outsourcing projects, adopting a hands-on approach at a time when India’s second largest software exporter is looking to strengthen ties with top outsourcing customers like Bank of America in a bid to generate more incremental revenues.Outsourcing24

A few weeks ago, Sikka got on a call with about 1,000 of the company’s project managers across the globe, spoke about the broader contours of how customer projects could deliver more value and discussed ways to identify high-value work in each of them, two people directly familiar with the matter said on the condition of anonymity.

Sikka has picked these projects as part of a pilot to improve revenue from top customer accounts and is personally monitoring them, even writing codes and architecting solutions wherever needed, one of the persons said. “What Sikka wants to do is raise value of the projects that are being delivered to customers – this is part of his broad ‘New and ReNew’ strategy,” the person said.

In all, Infosys is currently running 23,000 projects. Sikka, since he took over as CEO in August last year, has been attempting to inject new technology solutions into these projects for customers. An Infosys spokeswoman did not respond immediately to an email seeking comment. The company is currently in a so-called silent period ahead of its annual results announcement on April 24.

Sikka is betting that deeper, more meaningful engagements with top clients will translate into more business, at a time when Infosys is chasing large outsourcing deals to script a turnaround in its fortunes and regain industry-level growth rates. He has made an organisationwide push towards design thinking and forced employees to think of creative solutions to solve complex business problems for customers, as part of his vision to make technology the centrepiece of every client engagement.

“From my perspective what I did not expect…what I did not anticipate was the degree to which I find this mindset that we don’t use our imagination, our creativity, we do what we are told,” Sikka has said in an interview with ETin February. With commoditisation of traditional IT services, Sikka wants to focus on delivering more innovative, high-value solutions .

Recent SAP hires such as Abdul Razack and Navin Budhiraja are also playing a significant role, the people cited earlier said. “Sikka is making everyone at Infosys go through design thinking and I think it’s an interesting move – I don’t think it will change much among the 170,000 Infoscions. But at least there is a strong message coming from Infosys that is saying ‘we need to change and we need to reinvent the way we engage with our clients, we need to reinvent the way we deliver value to accounts’ . I think that’s a very good start,” said Fred Giron, vice president and research director at Forrester Research.

Sikka has interacted directly with randomly picked engineers and programmers to get feedback on certain projects, people directly involved with the projects said. Holger Mueller, vice president and principal analyst at Constellation Research, said, “Infosys is at a unique inflexion point now, where the company has people who understand traditional business and also have all these new SAP hires.”


Huge outsourcing boost for Ishida

April 13th, 2015 by Rahul Jain No comments »

A strategic decision to outsource part of its production has helped Ishida Europe double its capacity and achieve significant growth in the process.Outsourcing23

The company, which has sites in the West Midlands and Poole, turned to PP Electrical Systems to help it ease capacity issues and improve lead times offered to its global customer base.

What started as the supply of electrical harnesses has transformed into a long-term partnership, which sees the Walsall-based control and automation specialist oversee the base build of the multi-head food weighers, including building and fitting all associated controls.

These are then delivered to Ishida on a just-in-time (JIT) schedule for the final fit and bespoke configuration before being sent to clients supplying some of the world’s largest supermarkets.

“Results have been emphatic,” explained John Priest, operations director at Ishida Europe. “We proved the outsourcing arrangement worked and then adopted it for other product lines.

“The impact of strategic outsourcing and a number of additional activities has delivered growth of 20% year-on-year since 2012. This has enabled us to employ 75 more people, and, in recognition of this achievement, we were awarded the Queens Award for Enterprise – International Trade in 2014.”

PP Electrical Systems is creating a reputation for working with Original Equipment Manufacturers (OEMs) looking to replace 100% vertical integration of production by sub-contracting out non-core competencies.

Its state-of-the-art 40,000 sq ft facility in the West Midlands operates lean manufacturing and six sigma principles and – coupled with more than £1m of investment in automation for cable preparation – provides world class connectivity and quality to its customers.


Indian outsourcing is booming in the Nordic countries

April 13th, 2015 by Rahul Jain No comments »

Indian IT service providers are securing more and more high-profile outsourcing deals in the Nordics, involving the likes of Nokia, DNB and ABB. And with companies such as HCL Technologies and Wipro announcing further investments in the region, their presence is expected to grow.Outsourcing23

Gartner research analyst Mika Rajamäki said: “Based on 2013 figures, Indian IT suppliers have been growing faster in the Nordic market than the traditional service providers. If the annual growth of the traditional suppliers has been 2-3%, Indian companies have been growing by almost 20% a year.”

Indian IT companies have not yet hit the Nordics’ top 10 IT suppliers list, but this is likely to change. Because Indian service providers focus mainly on the biggest fish in the manufacturing, finance and telecoms industries, one major deal can boost their market share significantly.

“Sweden has the largest market, but Indian companies seem to have the highest market share in Finland, around 4%,” said Rajamäki. “In Denmark, Sweden and Norway, their market share is around 1%, but these figures are from 2013 and there were some major deals last year, so the figures have definitely grown. Average market share for Indian companies in the Nordics is probably around 4-5%, closer to 5%, and in Finland it will grow to 6-7% this year.”

Some Indian IT suppliers have been operating in the Nordics since the 1990s, but the real challenge has begun over the past five years. Their aim is to shake up a static market dominated by local and multinational suppliers such as Tieto, Evry, KMD, IBM and Accenture.

Increasing investments in the region include HCL’s seven-year deal with Norway’s DNB bank, worth $400m. While most services are still offshore, companies such as Tata Consultancy Services (TCS), HCL Technologies, Wipro, Infosys and Tech Mahindra have several offices in Nordic countries and a growing number of local delivery centres.

Johan Hallberg, research manager at IDC Nordic, said: “In the past, Indian IT suppliers were doing lower-level outsourcing and were often invited as subcontractors by medium-size Nordic players. But they have learnt that they can’t sell on price alone. They understand that they need more than a sales force in the Nordics and have started to market themselves in a different way.”

The Nordic appeal
But why the Nordics? Hallberg says the Nordic IT services market has been growing more quickly than in continental Europe, especially in Sweden, which has not been hit as hard by the economic crisis as many other European countries. The Nordics also have a relatively mature market and a large public sector with a major IT budget, he adds.

According to IDC figures, the IT services market in the Nordics was worth $24.4bn in 2014. Outsourcing is worth $12.6bn of that and it remains the main area where Indian suppliers operate.

While it is an attractive market, a key fact about the Nordics is that they still value local presence. A 2013 Ernst and Young study found that most outsourced services remained ‘onshore’ (in the same location or country). This is especially true of Sweden, where 87% of outsourced services were located onshore. Denmark was at the other end of the spectrum with 59% of services onshore, while Finland (74%) and Norway (80%) sat in the middle.

“The Indian suppliers have understood that they need to have local sales forces, local consultants and local datacentres,” said Hallberg. “It has become even more important for Nordic services companies to show their understanding of local business culture, laws and rules. Nordic suppliers have also started to specialise to meet Indian competition.”

The importance of a local presence is echoed by TCS, the biggest Indian IT supplier in the Nordics. Amit Bajaj, the company’s head of North Europe, says TCS has more than doubled the size of its operation in the Nordics since 2010 and has increased local hiring.

“We see the Nordic countries as a very interesting market,” said Bajaj. “This region hosts a number of very innovative and internationally competitive firms – just the kind that are a good match for us.”

Shaking up customer service
Gone are the days when the success of Indian IT suppliers could be measured only in cost savings. In recent years, Indian service providers have shown up well in customer satisfaction surveys. In Whitelane Research’s 2014 Nordic IT Outsourcing Study, TCS led the pack with 83% for contract satisfaction, with Infosys close behind at 79%, both well above the average of 71%. Three out of the top 10 companies in the survey were Indian.

IDC Nordic’s Hallberg added: “Many companies in the Nordics are in their third generation of outsourcing and are often mature in their requests. This has led to services companies needing to be even better in their customer understanding and to be closer to customers.

“The local revenue of some Indian suppliers has grown by more than 30% year-on-year. They are usually in the final selection phase in larger deals, which was not the case just a couple of years ago.”

Gartner’s Rajamäki pointed out that Indian companies can be very agile in their operations and act like small companies.

“Indians are slightly more daring in taking risks [than traditional players] and share the risk of their customers,” he said. “They are also efficient in the transition phase. Most deals today are taken over from competitors, and completely new deals are a rarity. What Indian suppliers do very well is to rapidly take over a customer and invest in the relationship.”

The deals Indian companies are winning are not just focused on one area, but range from help desks and IT infrastructure to application development and modernisation of legacy systems.

Breaking down barriers
Hallberg and Rajamäki both believe competition in the Nordic market can only grow. Indian IT suppliers are starting to gain a foothold in other IT services, such as project services. They are also starting to challenge traditional players for public sector deals as language barriers can be overcome by hiring locally, forming local partnerships or even acquisitions.

“Traditional Nordic and multinational players will increase offshoring where it is viable, such as cloud services, while Indian suppliers have come to the Nordics to stay and will continue to build their presence here,” says Rajamäki.

At the same time, the IT services market is undergoing a wider transformation. Although Bajaj cannot comment on TCS’s future plans in the Nordics, he highlights the internet of things, cloud services, digitisation and BYOD trends as drivers of change in the industry.

“The market is in a state of dramatic and constant change,” says Bajaj. “It has been predicted that in 10 years’ time, 40% of the current Fortune 500 companies will no longer exist.

“In this changing environment, organisations are fighting to get a lead on the digital re-imagining of their business, to simplify their processes and systems and to secure appropriate governance in terms of security, risk management and compliance. As Gartner pointed out, global IT spend will continue to grow at over 3% for this year.”

The changing Nordic market presents both an opportunity and a challenge for services providers, but one thing is certain: competition is increasing, and so are the rewards.


Why remote outsourcing of IT infrastructure management services is important

April 9th, 2015 by Rahul Jain No comments »

IT Infrastructure is a key business enabler and the heart of the enterprise as all enterprises rely on business aligned IT to support their business operations. Changes in market, customer preferences, technologies, etc., necessitate IT infrastructure transformation and support to meet the changing business requirements. This improves agility, scalability, operating efficiency, competitiveness, growth, and helps to sustain business. The key challenge is to run the IT Infrastructure in a highly available and efficient way.Outsourcing22

Budgetary constraints necessitate organizations to look at reducing costs and stepping up efficiently by focusing more on core business areas. Remote outsourcing of IT Infrastructure Management Services is the cost effective way out to achieve this and confers manifold benefits that effectively go beyond cost savings.

sathya-prakash-380Sathya Prakash from HTC Global Services
Remote Infrastructure Management (RIM) refers to remotely monitoring and managing the entire mission-critical IT infrastructure – workstations (desktops, laptops, notebooks, etc.), servers, network devices, storage devices, IT security devices, etc.This includes supporting, administering, maintaining, troubleshooting, performance enhancement, optimizing, securing, etc.

RIM services include 24X7X365 remote support and monitoring of:
Server Administration
Datacentre Operations
Storage Management
Database Management
End-User support
Desktop Services
Network Operations
IT Security Services
Backup and Disaster Recovery
Technical Service Desk
The key business drivers that favour outsourcing RIM services are:

Cost reduction through labour arbitrage and utilization – access to vendor’s resources and virtualization technologies
Highly skilled technical resources available on demand
Vendor’s domain expertise
Access to vendor’s state-of-the-art tools and technologies
Vendor’s proven process and continuous improvement capabilities
Proactive response
Process-based approach for efficient handling of issues
Quality certifications ensuring adherence to standards and security controls
Best practices and domain expertise
Risk Mitigation for assured business continuity
Flexibility and scalability to absorb spikes and dips – manpower / technology requirements
Pre-emptive problem resolution through proactive monitoring and event correlation
Flexibility of service
Domain expertise
Cost savings due to access to vendor’s resources and virtualization technologies
India – a key player in RIM outsourcing

RIM outsourcing makes shrewd business sense due to high competition, need for innovation and speed, and pursuit to reduce operational expenses. India has been a leader and the primary offshore destination in providing RIM services due to its mature processes, highly skilled technical expertise, and the necessary infrastructure necessary to manage and sustain RIM service operations with consistent performance. RIM services have been one of the fastest growing segments of Indian IT. The most compelling reasons to outsource to India are cost benefits and beyond – about 25% reduction in IT infrastructure budget, better service, quality and transformational value, enhanced operational efficiency, better business outcomes, etc.


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