IT majors offer funding to clients to spur demand

BANGALORE: Faced with liquidity crunch, many IT customers are looking at the option of having their service providers finance technology projects by making the upfront capital investment.

Tech firms such as Azim Premji-owned Wipro Technologies have already put in a couple of million dollars for setting up labs and equipments for their clients to help the projects take off.

Sanjay Seth, general manager (global alliance and marketing), testing services division, Wipro Technologies, said the company has invested in equipments and labs for its customers, mostly in the telecom vertical. “This is a very a different business model, where we have common resources for our customers but we also ensure the security of data,” he said.

The third largest tech firm has large labs that are dedicated to large global telecom equipment makers. The company has made similar investments for some wi-fi and 3G equipment players. “This business model is helping us ramp up business quickly and also get new divisions of large clients to offshore to us,” said Seth.

A study by PricewaterhouseCoopers (PwC) and Duke University on the short- and long-term impact of the global financial crisis on offshore outsourcing states that around 9% of IT customers surveyed were looking at this option.

Other ways that tech spenders are looking at to cope with capital shortage are delaying projects, spreading the implementation of projects over longer periods and soliciting third-party financing.

Duke University professor Arie Y Lewin, the lead researcher of study, said that part-project financing by service vendors was common in pharma and biotechnology verticals. “We have found that they are very popular in projects where the client has to set up R&D centres or clinical testing lab. Many service vendors spend on setting up the facilities for the clients and recover it over a period of time by building it into the deal value,” said Lewin.

Krishna Kumar Natarajan, president and CEO (IT services), MindTree Consulting, said that such a business model had higher risk than the traditional one. “It is for companies with an appetite for very high risk because if a client goes bankrupt, then your recovery on investment can be in jeopardy. It depends on how much you know about a company but today, even reputed names like Lehman Brothers have fallen. So you can’t be completely sure on that front,” said Natarajan.
p_sharma@dnaindia.net