Domination of MNCs in mega IT deals to continue

Having a cake doesn’t mean one can eat it too.

Right now, the top Indian software companies are pleased as a punch that large contracts are back on the table. The biggies, such as TCS and Infosys, have in fact been adding one or two contracts worth more than $100 million each quarter for the last year or so.

But this is too good a trend to last, say experts, pointing out that the large contracts bagged by local companies are mostly of the ‘restructuring’ kind and have also been shrinking in size.

Most large deals are offshoots of existing contracts with multinational IT firms such as IBM, Accenture, HP and Capgemini, which are coming out as restructuring deals.

What’s more, the total contract value or the size of contracts has shrunk 4% in 2010 compared with 2009, according to data from 3Q Index of TPI, a US-based advisory firm that structures outsourcing deals above $25 million.

‘TCV (total contract value) share for MNCs has ranged from 50% to 60% since 2007 and has slightly increased since 2009 due to restructuring activity,” TPI said in a note recently.

Restructuring, broadly comprising renegotiations, renewals and extensions of existing outsourcing contracts, totalled $6.8 billion out of the TCV of $14 billion during the third quarter, or 48% of the global market. Year to date, restructurings have accounted for 34% of overall TCV, compared with typically about 20% over the past three years, and have increased 56% over 2009.

According to TPI, the contest between MNC and Indian IT firms is now more on large contracts. “While they occasionally attack each other’s sweet spot, $25-$199 million is becoming the battleground,” it said.

Analysts admit that MNC IT firms will continue to win more large contracts than Indian IT firms.

“They (MNC IT firms) will continue to win more. They are huge and their offering is so diverse. And we have still only about 5% of the total IT services market share,” said an analyst who tracks the IT sector at a brokerage house in Mumbai.

He requested not to be named as he is not authorised to speak to the press.

Still, there is no denying that in terms of garnering business, the performance of top Indian IT firms has been impressive in recent times.

“Take Infosys. Its share of Apple’s IT budget is more than 50% now. Similarly, the share of Infosys and Wipro in Microsoft’s IT budget is more than 70%. And this was not the case just about two years ago,”  the analyst said.    

“If you see large new client wins, there also Indian guys are winning. Take HCL Technologies’ wins of Nokia, Xerox Corporation and DSG International. They are all above $200 million,” he added.

Since 2007, Indian IT firms have achieved one-fifth of the TCV.
“Competition is more equal than before. Obviously, they are winning more large contracts, but our rate of winning has also picked up. In the last six months, we have won nine deals which are $50million-plus,” said Subhash Dhar, Infosys executive council member and head of sales, marketing and communication at India’s second-largest IT firm.