TPI survey shows new IT deals to come from EMs

Scope narrowing in mature markets like the US and Europe

TPI, the world’s largest third-party oursourcing advisory, does not expect large new-scope IT contracts from mature outsourcing destinations like the US and Europe to be awarded this year.
Instead, they are expected to come from emerging nations and more in the BPO space than IT outsourcing.

Sid Pai, managing director and partner, TPI, believes India could gain from the trend, but it may not necessarily be beneficial to local software vendors. “Deal wins by India do not necessarily translate into a deal win by Indian software players. There will be a general shift towards global sourcing from India. Even IBM or Accenture, which have significant India presence, can win these deals.”

Rostow Ravanan, CFO, MindTree, estimates around 300 contracts could be up for renewals this year.

And even though there will be intense competition, Ravanan feels Indian players stand a good chance. “With global players, the inherent disadvantage is their high price points. I feel of all the deals, Indian players should be able to win 80% of the contracts.”  

On whether competition will lead to a price war, he said that is unlikely as it would be difficult to recover after a drop in price points.

“I think companies will maintain price discipline.”

One analyst, who did not want to be named, suggested HCL might win more contracts because it is ready to sacrifice its price points.

“HCL and Cognizant are very aggressive by nature. I feel this time around even Wipro will show the same aggression under the leadership of Kurein (Wipro CEO).”

Why was Infy hit? Large deals taper, more contracts expire

The total contract value (TCV) of large outsourcing deals — those worth more than $25 million apiece — explains why Infosys had a poor run in the January-March quarter.  New-scope activity slowed and higher number of outsourcing contracts expired.

India’s second-largest information technology (IT) firm is said to be generally on a firmer ground when it comes to new deals, but for restructuring-driven contracts, its rivals Tata Consultancy Services (TCS) and HCL Technologies stand a better chance.

“The restructuring-driven large deals bode well for HCL, which has a clear focus and prowess in growing by gaining share off larger peers. TCS, too, was among the top companies in restructuring deals,” TPI said in its report on Tuesday.

The global TPI index shows that TCV slipped 35% sequentially and 22% annually at $18.7 billion last quarter.
New scope deals plunged 45% on quarter and 46% on year, while restructuring deals declined 13% sequentially but were up 82% annually. 

Interestingly, outsourcing contracts were down 37% on quarter and 20% on year, while BPO contracts were up 30% and 27%, respectively.

This, TPI said, was due to fewer outsourcing deals in Europe, Middle East and Asia, but the number is expected rebound in the second half of 2012.

The number of contracts ending and coming up for renewal in the current year jumped 20% to 690 from 570. It has estimated over $40 billion worth of contracts are expected to be on the table this year.

“Increased number of transaction counts and declining average contract durations have been responsible for the higher number of contract expirations,” TPI said.