Movers & Shakers: Deals - Winning all the Way

The Indian outsourcing saga has just got bigger and stronger.
That's because Tech Mahindra bagged the biggest outsourcing contract by an
Indian supplier, ending calendar year 2006 on a promising note. Tech Mahindra,
formerly known as Mahindra British Telecom, has signed a $1 bn five-year deal
with British Telecom to provide strategic sourcing services. This is the second
largest deal in India's outsourcing history after the $2.2 bn ABN Amro
outsourcing contract in September last year of which $400 mn came to Indian
outsourcing vendors, TCS and Infosys. While the former got $260 mn of the
contract, Infosys got $140 mn while the rest went to IBM.

A Growing Pie

According to TPI, the world's largest sourcing advisory firm, the growth
in offshore outsourcing is further evidenced by impressive gains for the Indian
service providers, whose market share has risen to 5.2% of the total value of
contracts signed till June 2006-up from less than 3% in 2005 and just over 1%
in 2004. Moreover, data relating to deals currently under negotiation (with
which TPI is involved) points to a dramatic, almost three-fold (284%) increase
in the value of deals for which the Indian providers are competing, compared
with three months ago. The size of deals the Indian service providers are
winning is also increasing, up by 25% from an average deal size of €101 mn in
2005 to €126 mn till mid-2006.

Of the 11 contracts totaling €1.38 bn awarded to Indian
providers last year, nine are in Indias' traditional areas of strength in
applications development and maintenance (ADM) or finance and accounting
(F&A).

Interestingly, the global outsourcing industry saw a decline in
contracts by volume and value during the third quarter of 2006, as compared with
the same quarter last year according to a TPI analysis.

However, on the global service provider landscape, India-based
providers continued to gain total contract value (TCV) market share, increasing
from nearly 1% in 2004, to slightly over 4% of the broader market bookings till
the third quarter of calendar 2006. Their share of awarded contracts has also
increased from about 2% to nearly 8% during the same period. India-based
providers are beginning to sign business in infrastructure-related areas, and
they have over 25% TCV share in the pure applications development and
maintenance (ADM) market, more than any single multinational service provider.
Significant trends suggest that there have been an increasing number of smaller
single-process contracts compared with larger multi-process contracts in recent
years. Short-term contracts have become more popular.

Taking on the Majors

Billion dollar contracts, typically garnered by the likes of IBM, EDS, and
Accenture happen because they are multiple location delivery centers. They have
built their reputation on practices and methodologies, and have highly
productive staff across technologies and applications. The same trends seem to
taking place in the top three Indian companies-Wipro, TCS and Infosys. They
are opening up delivery centers across the world, trying to project their unique
methodologies and research. India-based players are changing the rules of the
market and the big Indian IT services firms are expected to join the Ivy League
of outsourcers given their growing prowess in bagging big ticket deals as well
as market expectations. Indian vendors are not just beginning to gain market
share in the US, but also in Continental Europe, which is reflected in the two
largest contracts ever bagged by TCS in Europe: Pearl in the UK ($840 mn) and
ABN Amro in the Netherlands ($260 mn).

While the tier-1 companies are strategically well-placed in the
global outsourcing game, Mahindra BT shows a great deal of promise in the manner
in which tier-3 players are trying to get their act together to perfect the
global delivery model.

• A $35 mn deal from a
  major telecom service provider in Europe for end-to-end development
  and deployment of a strategic OSS platform.

• Business intelligence
  solution implementation to achieve Basel II compliance for a leading
  European Bank

• Contract worth over
  $50 mn from a large North American retailer as a strategic partner for
  developing their next generation business critical applications.

• End-to-end CRM
  solution for wireless network comprising GSM & 3G services for a
  leading telecommunication service provider in the Middle East worth
  $33 mn.

• Seven-year $65 mn
  deal from Somerfield to reorganize its IT services

• A $90 mn Qantas
  engagement for a seven-year deal which is the largest ever for an
  Indian IT company in Australia.

• A five-year $27 mn
  contract from General motors, which is part of a mega, multi-vendor
  deal awarded by the global auto major

• A 10-year, Rs 360
  crore IT sourcing deal to Wipro Infotech from HDFC Bank.

• A seven-year
  multi-million dollar contract with Qantas along with TCS

• A $30 mn 10-year
  contract with Punjab & Sind Bank to supply, implement, and
  maintain a comprehensive core banking system (CBS)

• A five-year deal to
  maintain, support, and enhance the application portfolio for Nissan
  North America.

• A long-term strategic
  partnership with KMD, one of the largest IT companies in Denmark, to
  provide SAP solutions in Denmark.

• A $330 mn co-sourcing
  deal to provide system development, application delivery,
  infrastructure support and maintenance services to the IS function of
  DSG International Plc, Europe's leading specialist electrical
  retailer.

• A $70 mn deal from
  Teradyne for IT consulting, application development and end-to-end
  application and IT infrastructure management involving data center,
  network, security and help desk services

• A $200 mn contract
  from Skandia to enable and accelerate Skandia UK's move to SOA

• A $1 bn five-year
  deal with British Telecom to provide strategic sourcing services.

Source: Company
information and DQ research

While the offshore outsourcing market remains hot, so does the
domestic outsourcing opportunity which in fact has started picking up only in
the last couple of years. The domestic IT services market in India has witnessed
good growth in 2005. According to IDC, the domestic IT services market was worth
$2.3 bn in 2004 and has been growing at a CAGR of 19%.

Future Positive

According to a 2006 research by TPI, close to $100 bn worth of big-ticket
outsourcing contracts will come up for renewal in the next two years. The $100
bn figure includes only large deals, and only those originating from the US.
Europe, too, is where the action is. India's strength lies in applications
management, which is close to a third of the entire outsourcing pie. Two of the
mega contracts that come up for renewal by January 2007 are from DuPont ($4 bn,
with Accenture as the incumbent) and Monsanto ($2.5 bn, with IBM Global Services
as the current vendor).

While average deal sizes are increasing, more and more Indian
service providers are being considered for mega deals. And, there are several
factors that are driving this trend. One, customers are looking for multiple
vendors and specialist, best-of-breed vendors around the world. Two, Indian IT
services firms are considered the best in the application maintenance and
development space. The value proposition of Indian vendors-the global delivery
model-has matured

today, and there is enough confidence on the client side in Indian vendors as
well as on the vendor side on the implementation front. With Indian companies
integrating into the consulting space, they are able to provide a total solution
to clients. The capability to offer an integrated solution is also resulting in
Indian companies aiming for larger-value deals, in the $500 mn-$1 bn vicinity.

According to Nasscom, Indian software and service export
revenues grew by 32% last fiscal and is forecasted to climb to $23.4 bn in the
current fiscal from $17.7 bn and expected to grow to $60 bn by 2010. That should
not be a steep target given the pace at which offshore outsourcing deals are
growing. Cheers to that!

Bhaswati Chakravorty


bhaswatic@cybermedia.co.in