Posts Tagged ‘Indian’

Indian Firms Fight Fiercely with Global Peers Over Large Outsourcing Deals

May 26th, 2015

Indian outsourcing firms such as Cognizant and Wipro captured nearly a quarter of the top 100 outsourcing deals in 2014, according to a study by research firm IDC.Outsourcing
Despite being small in size compared to their American peers, Indian BPO providers are proving strong competitors for large outsourcing deals. To strength their hand they are putting forward new offerings such as cloud and hosting services.

Analysts say that investing in more transformative capabilities in areas such as analytics, social media, and mobility, and enhancing strategic local capabilities and resources, have enabled them to compete successfully with well-established players.

Leveraging the offshore business model has also contributed greatly to their success, according to David Tapper, IDC’s Vice President, Outsourcing and Offshore Services.

According to IDC’s data, Indian outsourcing companies represented more than 50% of the total contract value of the top 100 outsourcing deals in 2014. In 2013, by comparison, they represented 43% of the total contract value.

Globally, the top five vendors – who include the likes of IBM and CGI – have continued to snap up nearly 50% of high-valued outsourcing deals. With US$13.8 billion worth of deals, IBM tops the list. CGI is ranked second, though the value of the contracts ($2.8 billion) it won is considerably lower.

Indian firms Cognizant and Wipro are quickly catching up with CGI, having won contracts worth $2.7 billion and $2.3 billion respectively.

The research firm says the number of mega deals is currently shrinking, as are the number of government contracts. Furthermore, very few providers are competing for mega deals, partly due to a belief that large deals can be very complicated to implement.


Indian IT firms like TCS, Infosys to gain from HP’s enterprise services cost cuts, say analysts

May 25th, 2015

Hewlett-Packard’s decision to cut $2 billion (about Rs 12,700 crore) in costs in its enterprise services business could open up opportunities for Indian technology firms such as Tata Consultancy Services and InfosysBSE -0.08 %, said analysts tracking the development. Outsourcing48

Infrastructure contracts such as HP’s $400-million data centre outsourcing deal with oil company BP in 2010 and its $700-million deal with German energy provider E.ON could be taken over by Indian firms when renewed, they said. HP’s troubled enterprise services businesses provides technology consulting, outsourcing and support services and competes with companies such as TCS, Infosys, Wipro, IBM and Accenture.

“In the infrastructure space, certainly they are being challenged by cheaper Indian providers,”said an Indian IT industry consultant, declining to be identified. “And the constant round of cost-cutting is a distraction and makes them less competitive.”

The 75-year-old company faces increasing pressure in India where its pricing is much higher than that of traditional outsourcing firms, and some shedding of contracts will happen with the split, giving Indian IT companies an opportunity to take over HP’s market share, said a second industry expert who also did not want to be named.

“HP has been in constant restructuring for a while; the whole company has been in flux,”said Tom Reuner, managing director at HfS Research. “It’s caught between two big rocks –the secular trend of asset light, more cloud-based IT and its own internal troubles.”

The planned cuts in the enterprises services division can come from staff reductions, moving more work offshore, delaying or eliminating investments, and writing down assets that are being deprecated, said Peter Bendor-Samuel, chief executive at consulting firm Everest Group.


Indian IT captured quarter of top 100 outsourcing deals in 2014

May 21st, 2015

India-based outsourcers captured nearly a quarter of the top-100 outsourcing deals in 2014, said International Data Corporation’s (IDC) analysis of worldwide outsourcing deals during 2012-2014.Outsourcing40

The analysis shows the top-five vendors in 2014 captured over 50 per cent of the total contract value (TCV) of top-100 outsourcing deals in 2014. This is up from 43 per cent by the top-five vendors in 2013, which included IBM with $13.8 billion, CGI with $2.8 billion, Cognizant with $2.7 billion, Capgemini with $2.6 billion, and Wipro with $2.3 billion. However, the average deal size continues to shrink with fewer mega-deals (TCV of $1 billion or more).

Research shows that there has been a shift from public to private sector deals in 2014.

An additional shift to fewer providers winning and potentially competing for the largest outsourcing deals is also occurring. “India-based outsourcers are making significant inroads into the global top-100 outsourcing deals,” said David Tapper, vice-president, outsourcing and offshore services.

“The combination of effectively leveraging the offshore business model; incorporating new methods of service delivery such as hosting and cloud; investing in more transformative capabilities in areas such as analytics, social media, and mobility; and enhancing strategic local capabilities and resources has enabled the India-based outsourcers to effectively compete with well-established competitors in the outsourcing industry for the largest of large-scale outsourcing deals.”


Gartner says Indian healthcare providers to spend US$ 1.2 bn on IT in 2015

May 19th, 2015

Healthcare providers in India are expected to spend US$ 1.2 billion on IT products and services in 2015, an increase of 7 per cent over 2014, according to Gartner, Inc., leading information technology research and advisory company. This forecast includes spending by healthcare providers (including hospitals, as well as ambulatory service and physicians practices) on internal services, software, IT services, data center, devices and telecom services.Outsourcing40

Dr Anurag Gupta, research vice president at Gartner said, “IT services, which includes consulting, implementation, IT outsourcing and business process outsourcing, will be the largest overall spending category through 2019 within the health care providers sector. It is expected to reach US$ 317 million in 2015, up from $295 million in 2014 – with the consulting segment growing 11 per cent.”

Internal services will achieve the highest growth rate amongst the spending categories with a 17 per cent increase in 2015 to reach US$ 297 million. Internal services refer to salaries and benefits paid to the information services staff of an organization. The information services staff includes all company employees that plan, develop, implement and maintain information systems. Software spending will grow 6.2 per cent to reach US$ 103 million in 2015, up from $97 million in 2014, led by growth in vertical specific software (software applications that are unique to a vertical industry. These are stand-alone applications that are not modules or extensions of horizontal applications).

“India has a young population and a fast growing middle class. Public sector healthcare will expand their focus on providing access to care mainly through primary coverage and leveraging mobile technologies. Private sector, on the other hand, will focus on building middle tier and tertiary care facilities mainly for the city dwellers,” said Dr Gupta.” India’s healthcare technology investments are still very small compared to the overall population. We expect providers to benefit by offering low upfront cost, recurring, or outcome base models, especially in core digitization technologies like hospital information systems.”

Gartner, Inc. delivers the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in hightech and telecom enterprises and professional services firms, to technology investors, Gartner is the valuable partner to clients in approximately 10,000 distinct enterprises worldwide.


India’s Outsourcing Stocks Need Work

May 18th, 2015

India’s stock market has been in retreat since mid-April, when the country’s bellwether information-technology services companies kicked off a weak earnings season. Revenue growth at the Big Four— Tata Consulting Services , Infosys , Wipro, and HCL Technologies —slowed to 7% in the first quarter from 12% in all of 2014.Outsourcing37

A stronger dollar was the main culprit, but not in the way you might think. Although the Indian rupee maintained its value against the greenback in the first quarter, the euro fell 12.5% against the dollar, and the British pound dropped 5.3%. That’s important because Europe has been the main driver of growth for the IT companies in recent years, rather than the U.S., says Jefferies analyst Atul Goyal. A weaker currency can prompt European companies to renegotiate terms or cancel outsourcing contracts. Meanwhile, a firmer rupee erodes margins. Last quarter, operating profit at the Big Four grew by just 2%.

The slowdown is likely to continue. Barring big economic changes, Barclays estimates, the Indian vendors will grow by high-single to low-double digits in the next three years, down from 20% just four years ago. Close to $150 billion in contracts is coming up for renewal, over 60% from Europe and the Middle East, which suffer from a mixture of dollar and oil woes.

A rising dollar also invites more foreign competition for U.S. business, the Indian vendors’ stronghold. Last month, France’s Capgemini (ticker: CAP.France) paid about $4 billion for U.S. IT peer iGATE (IGTE). Combined two outsourcers’s $13.5 billion in revenue is just shy of Tata’s $14.8 billion.

Infosys’ (INFY) new CEO Vishal Sikka, an ex-SAP executive, set off alarm bells recently, saying the industry had become “commoditized.” To win deals, “we have to go very aggressive on pricing,” he said. That was a possible public signal of a price war, according to UBS analyst Diviya Nagarajan. Curiously, Infosys expects its revenue to grow by 10% to 12% this year, even though its revenue declined sequentially in the first quarter.

FOR ALL OF THE WORRIES, shares of Indian IT vendors are pretty pricey. The richest, Tata (532540.India), trades at 20 times forward earnings; Infosys, at 16.8; HCL (532281.India) at 16.2; and the cheapest, Wipro (WIT), at 14.3. Investors’ high expectations don’t leave much room for error. Last October, Tata dipped 8.7% in a day after missing earnings by a slight margin.

One way to maintain this valuation is to return money to shareholders, suggests Barclays. U.S. tech consultant Accenture (ACN), for instance, trades at 19 times earnings despite sub-5% growth because it returns virtually all of its earnings via dividends and buybacks. Among Indian vendors, Tata pays out the biggest chunk of earnings via dividends, at 56%, followed by Infosys, at 39%.

While investors can hope for more, Infosys will likely keep most of its cash for acquisitions. Its new CEO plans to grow its $8.7 billion in revenues to $20 billion in five years, or an annualized 18% rate, and move into higher-end social, mobile, big data, and cloud technologies via purchases. In February, Infosys paid $200 million for automated-testing software vendor Panaya, valuing it at six times sales. UBS, worried about “execution errors,” sees another 17% downside in Infosys.

Jefferies’ Goyal advises investors to “take a steady, strong ship that won’t tumble in rough seas. He favors Tata, the biggest of the Big Four.


India’s IT incumbents struggle to adapt as outsourcing industry changes

May 14th, 2015

India’s massive outsourcing industry is changing. Growth in its traditional markets has flattened as the country’s biggest IT providers struggle to adapt.Outsourcing35

Companies like TCS, Infosys and Wipro have repeatedly blamed the stronger US dollar for poor results as a good number of clients are based stateside.

But the underlying reason is simply that fewer businesses need their services.

“The traditional labour-based service delivery is now being cannibalised by access-based, cloud-based, platform-based and automation-based service delivery,” said Arup Roy, research director at Gartner India Research and Advisory Services.

India’s IT providers have long been aware of this global shift to cloud and mobile computing, and some have been quicker than others to adapt.

“We have seen TCS acting in a more nimble fashion compared to others such as Infosys and Wipro,” said Dhananjay Sinha, head of research and strategist at Emkay Global Financial Services.

“TCS has been fairly ahead of the curve in terms of getting into Europe and other specific verticals which has actually aided them to show a relatively strong growth to others. If you look at Wipro, it would be third or fourth year when the dollar revenue growth would be sub 10 per cent. Likewise, Infosys has decelerated.”


But a key issue is that Indian IT firms remain averse to consolidation. Many are stuck in the old mindset and see big acquisitions as risky. Data from trade body Nasscom also show they have not scaled back hiring. TCS alone brought in close to 60,000 people last year.

To survive, analysts say these firms will need to invest a whole lot more on research and development, and start looking beyond their horizons.

Roy said: “If we talk about China, it has been a difficult a market for most of the service providers, likewise Brazil, Saudi and European countries.  I am talking about the Dutch country, Norwegian region as well as to a certain extent the eastern European regions.”

But even if they find new markets, analysts say they can no longer charge what they used to. Price wars have reportedly broken out as firms vie to retain marquee customers like American Express and Citigroup.

“Competitive pressure is going to intensify so as a result of that,” said Sinha. “As the industry has also matured, the clients are also demanding competitive pricing. I don’t think that there will be a consolidation happening as far as large players are concerned.”

While it is not ideal, sacrificing margins for a greater share of the market may be their only option for now.


Europe a $45bn potential outsourcing opportunity for Indian IT vendors

May 14th, 2015

Europe that has historically been slow to open up to outsourcing and offshoring may soon emerge as the next big frontier for Indian IT services player with $45 billion potential outsourcing opportunity, said a report. Indian players Tata Consultancy Services (TCS), HCL Technologies and Tech Mahindra will have first-movers advantage due to their early investment in the region.Outsourcing34

According to report by PhillipCapital, Germany and France continue to represent the largest potential with IT-spend potentials of $7.8 billion and $9.2 billion respectively. Companies from Italy, Spain, and Portugal continue to be reluctant to outsource due to rigid labour laws, language barriers, and negative mind set to offshoring. The total potential from Europe’s most outsourcing-friendly regions (UK, Scandinavia, Germany, France, Switzerland, and Benelux) is $30.4 billion (out of the total $45 billion).

“As the EU region grapples with declining demand and ailing economies, most companies there have been struggling to remain afloat. In times like these, peer pressure will be one of the most important factors that will push more companies towards outsourcing,” said Vibhor Singhal and Deepan Kapadia of PhillipCapital said in their report.

PhillipCapital had last year come out with a report that said that about 70 per cent of the 143 companies in the European Union-comprising top 10-12 by capex spend in each country across 20 countries and six verticals – revealed that 33 companies or 23 per cent have never outsourced their IT operations. Of the remaining 110 companies, 66 (46% of the total) have outsourced, but not offshored. Put together, 99 companies (70 per cent of the total) have not outsourced or offshored their IT operations – presenting a huge opportunity for Indian IT vendors.

In a follow up to the report PhillipCapital this year the analyst found that almost 60 per cent of the companies that have not outsourced/offshored their IT operations are doing badly (vs. peers who have outsourced). “While there might not be a causal relationship between the two, we believe that consistent underperformance will surely force these companies to do a relative analysis, which could throw up IT outsourcing as a major avenue for saving costs,” said Singhal and Kapadia.

The report further added that, 14 of the 30 companies that have never outsourced (47 per cent) are underperforming their sector peers. Similarly, 41 of the 63 companies (65 per cent) that have

outsourced but not offshored their IT operations are on weaker ground. Put together, 55 of the 93 (59 per cent) non-outsourcing/non-offshoring companies will be forced to consider IT outsourcing as a possible avenue to improve performance.

The highest share of non-outsourcer underperformers is in BFSI (71per cent) and E&U (84 per cent). All sectors, apart from retail and healthcare, have more than 50 per cent of the non-outsourcers underperforming their counterparts. We expect big data and mobility to drive outsourcing demand in the retail sector, said the report.

TCS, which has been among the few who has invested in Europe early on, has stated that Europe for the first quarter of FY16 will grow better than the company average.

Singhal and Kapadi in their report also said that their 2014 report was validated as in the last 12 months 36 large deals have been awarded form the region, and of which, 23 of them went to the Indian vendors. Of the 36 deals 17 were awarded by enterprises who outsourced and/or offshored for the first time. Nine were renewal deals while 27 were new contracts. Indian vendors bagged 23 while 13 went to MNCs (local/global) vendors such as IBM, Capgemini, and Atos Origin.

A secular trend has emerged over the last two years – Indian IT companies have begun capturing MNC players’ market share (from IBM and Accenture and local players such as Cap-Gemini and Atos Origin). Few examples of high-profile vendor substitution are: HCL Tech challenged MNCs (IBM and Capgemini) in contracts from DNB and Novartis and won. Infosys has recently siphoned out a large part of Daimler’s IMS contract with HP. TCS won IT outsourcing contract (first time offshoring company) inspite of the incumbents like Accenture and Sogeti.

So overall, almost all Indian vendors fared equally well in capturing deals. However, as the outsourcing fever catches on, we expect that the relatively stronger presence of TCS in the region will help it to grab a larger share of deals at the expense of others. HCL Tech should benefit from the surge in IMS deals from the region over the next few years. TechM should benefit from its strong presence in retail – a domain which offers one of the biggest IT outsourcing opportunities and where TechM has a strong presence (courtesy Satyam), said the report.


–Europe a $45bn opportunity

–Italy, France & Germany present the biggest opportunity with a total capex of $17bn

–Manufacturing & retail will drive the next wave of IT outsourcing with a capex of around $16.8bn

— Scandinavia, UK, France, and Benelux saw majority of first timers


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