The global outsourcing market which is heading South also seems to be ironically creating more opportunities for Indian IT service providers.

A just released TPI report says the total value of outsourcing deals signed in July-September quarter, declined by 20 per cent both sequentially and year on year, to $14.1 billion. Though outsourcing deals typically dip in the third quarter, 2010 saw the lowest third-quarter in five years, notes TPI.

TPI, the world’s largest sourcing advisor, tracks outsourcing contracts valued higher than $25 million. Interestingly, the average size of contracts have also come down and are now within the reach of Indian firms, which have traditionally been excluded from big-ticket outsourcing deals. According to TPI data, the average contract value of new outsourcing deals dipped from $358 million in 2000 to $105 million in 2010.

Wipro Joint CEO Girish Paranjape told Deccan Herald that Indian companies were traditionally excluded from large, long-term deals as they were seen as having limited capability to take over assets and people. The smaller deals have created a level playing field between MNCs and Indian companies, he added. Explaining the shift in the outsourcing industry, TPI says the seven to ten year contracts, which were awarded in the early 2000s, are now coming up for renewal. Customers are reportedly opting to restructure the deals seeking quicker returns and lower risk.

This year restructured deals have already accounted for 34 per cent of the total value of contracts signed so far, compared with typically about 20 per cent over the past three years, says TPI.

Industry watchers say restructuring may further lead to smaller deal sizes and work in favour of Indian firms, who have steadily eaten into the market share of traditional outsourcing MNCs such as IBM, HP, Accenture, CSC and Capgemini.

In 2000, just 2 per cent of the outsourcing deals, worth higher than $25 million, went to Indian firms, notes TPI. The number increased to 27 per cent in 2010. In the same period, the MNC share of the deals in the same value segment dipped from 65 per cent to 42 per cent.

The impact of Indian firms on the outsourcing market is modest but increasing in importance, says TPI. The next five years will see head-to-head battles between Indian firms and MNCs, who still control the lion’s share of the market, it notes.

Source:http://www.deccanherald.com/content/106946/indian-companies-gain-level-playing.html

The vast differentiation that existed between the business models of local and multinational information technology (IT) services companies till a few years back is fast closing.

So much so, each is encroaching on the other’s turf as a result of which, competition is turning hot.

The differentiation narrowed geometrically post the 2008-09 recession when it was all about cost takeouts and revenue augmentation for customers, which are concentrated in the western markets like the US and Europe.

This is driving global technology companies like Accenture, IBM, Capgemini and others to offer more offshoring to their outsourcing clients.

On other hand, a clampdown by the US administration on outsourcing is forcing domestic IT firms to ramp up the headcount of local Americans on their onsite team to appease politicos.
For instance, the US-based Accenture’s proportion of employees in low-cost locations has shot up 9.7 percentage points to 56.9% in the fourth quarter (ended August 10) from 47.2% in the first quarter.

Its percentage of workforce at the low-cost centres had been constant around 44% for a very long time.

Analysts Bhavtosh Vajpayee and Nimish Joshi of CLSA Asia-Pacific Markets, who in a report last Friday after the US consulting firm’s results, said Accenture has seen considerable rise in the volume of outsourcing opportunity from low cost destinations.

“Accenture has seen sizeable increase in the volume of opportunity in outsourcing, with a high focus on low cost delivery,” they wrote.

And even though the duo fear revenue cannibalisation from Accenture’s accelerated shift to low-cost delivery centres, they “expect business momentum to overwhelm those worries.”
Ganesh Natarajan, chief executive officer (CEO) of Zensar Technologies, said shifting higher proportion of work to low-cost destinations like India, China and Latin America is a logical progression for giants like Accenture, IBM and Capegemini.

In the same way, he said, Indian tech companies would have to increase the onsite proportion of their operation to strike a balance for viable business.

“In the end, it would all be about customer relations,” he said.
A senior executive at the Indian subsidiary of Capgemini, the French IT and consulting firm, corroborated this trend while requesting he be not identified. “India is definitely becoming the major focus for us. We have already started making the country the hub for our R&D. Yes, the underlying objective is to cut costs and leverage the low-cost delivery mechanism,” he said.

According to him, IT multinationals in India, with their increasing low cost delivery approach, may have already started taking lead in areas where Indian IT firms have dominated for long.

Capgemini employs over 95,000 people worldwide, and its Indian employee strength, at over 26000, represents 27% of the global head count. In 2010, the company has already hired 10,000 and aims to end the year by hiring 7000 more.

Capegemini’s hiring guidance for the current year is not very different from local IT service firms, which ranges between 15,000 and 25,000.

B Ramaswamy, president and managing director of Sonata Software Ltd, said some of the global tech companies were beefing up headcounts at their Indian centres faster than the local tier-I players because of client pressure.

“They (tech multinationals) doing it to get a higher share of client’s wallet or merely toretain their customers. Since they already have an established client relationship and have proven domain, consulting and (application) development capabilities, they are putting the missing piece (offshoring capacity) in place,” he said.

Similarly, he said, Indian companies were trying to build customer relationship and enhance their consulting and domain competencies, which required them to have increase onsite presence.

Source:http://www.dnaindia.com/money/report_as-it-mncs-ape-indian-model-demarcating-lines-blur_1447738

As India’s top tech firms chase nearly $15 billion worth of outsourcing contracts to be renewed this year by global customers, they face increased competition from multinational rivals offering price discounts.

Around 422 outsourcing contracts worth nearly $15 billion are set to expire this year, providing an opportunity to Tata Consultancy Services (TCS), Infosys and Wipro among other IT firms, according to outsourcing experts.

“The time when Indian companies had a price advantage over non-Indian ones is gone,” said Siddharth (Sid) A Pai, partner & managing director, at outsourcing advisory firm TPI India. “Global players have lower operating margin expectation and thus greater flexibility to offer discounts,” he added.

Multinational rivals IBM, Accenture, and Capgemini have increased their India presence to offer lower prices to clients by offshoring more projects to the country. At the peak of the economic downturn global majors offered 35-50 percent discounts on high-end services, and continue to offer 8-10 percent discount till date, said Arup Roy, senior research analyst at Gartner Inc.

Operating margin, or profitability of Tata Consultancy Services, Infosys, and Wipro are between 17-30 percent, compared with 11-16 percent for Accenture and IBM. “Their Indian counterparts have an established reputation, in financial markets, of delivering higher margins, which will make it harder for them to offer lower billing rates, Mr Pai added.

TPI estimates that nearly two-thirds of the $15-billion deals are currently with companies from US and Western Europe. Around 89 percent of renegotiated deals are awarded to the incumbent outsourcing partner, Mr Pai said.

As an aftermath of the global, most of the remaining deals will go to larger, established Indian companies. An analyst with a domestic brokerage said India’s top five IT outsourcing companies can easily expect $3.5 billion worth of new deals this year.

Large deals are being outsourcing to multiple vendors. Accenture’s percentage of revenue from contracts in which it is the only partner has fallen from 60 percent to 50 percent in one year, said an analyst with an MNC brokerage who asked not to be named. Indian companies stand to gain from this, he added.

Volume of business outsourced to India, including to MNC operations in the country, is expected to rise to 40 percent of total outsourcing by the end of 2010 from 23 percent last year, he said. “Outsourcing revenue from India will double.”

Yet these new contracts will come at around 5 percent lower billing rates, according to an average estimate of five analysts. New business would account for around 20 percent of total business given faster client addition, affecting realised billing rates by 1 percent if all else remains constant.

Indian companies may also need to forgo some margins as clients aim for better service, which vendors have to commit to at the start of the contract, said Pai of TPI. “Companies will change services mix and billing models to absorb this hit,” the MNC brokerage analyst said.

Clients are also beginning to pay a premium for more onsite presence and alternate locations to India for some functions, which puts Indian players at a disadvantage, Mr Pai of TPI that helps clients negotiate outsourcing deals said.

Source:http://www.tradingmarkets.com/news/stock-alert/tacsf_wit_indian-cos-face-mnc-heat-as-15-bn-it-deals-up-for-renewal-886872.html