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Indian IT companies set sights on software outsourcing deals worth $50 billion in 2013

In 2013, software outsourcing deals worth nearly $50 billion ( 2.7 lakh crore) – about half the size of India‘s information technology industry- are coming up for renewal. Indian service providers are salivating at the prospect and sharpening their knives; the former for obvious reasons and the latter to undercut rivals in what is expected to be a fierce fight for contracts.


While price discounting is nothing new, the coming battle is expected to be particularly brutal because some of the restraints that kept rivalries under control have slipped away. Underlying all of the factors is the shape that the Indian software services sector is in entering 2013 after leaving behind one of the most forgettable years in its history.

“How and in what situation somebody becomes irrational very much depends on the situation someone is in,” said N Chandrasekaran, CEO of India’s largest software exporter Tata Consultancy Services during an earnings call last week. TCS, which has set the pace for industry growth, has been among the most optimistic about the sector’s prospects and is clearly in the best shape among Indian information technology companies.

The top four Indian IT services companies – TCS, Infosys, Wipro and HCL Technologies – have all announced results for the October-December quarter.

Corporations Demanding Outcomes

The numbers of the top four IT services companies are being read as indicators that the phase of slow growth may be coming to an end. But this does not mean there is a turnaround. In the year to March 2013, India’s software exports are expected to barely grow by double digits while the industry copes with fundamental technological and business model transformation. The old certainties of linear growth – where revenue is directly proportional to the number of employees – are going away and corporations are demanding outcomes rather than mere effort.

Analysts cite HCL Technologies recently winning a contract worth several millions dollars from Deutsche Bank as an example of aggressive discounting. Although it is not clear how much discounting happened, executives aware of the deal negotiations described the pricing offered as being “significantly” lower. Once a major client of Infosys, Deutsche Bank now brings in business well in excess of $50 million for HCL.

As large outsourcing contracts from Procter & Gamble, Bank of America, American Express and Unilever, first signed during 2002-03, come up for renewal this year, competition is expected to heat up further. Deep pricing discounts and even paying money upfront are becoming commonplace, with associated negative implications for margins, senior industry executives said.

“There is fierce competition in the market. And this is between two sets of players – rational and irrational,” said TK Kurien, CEO at Wipro, India’s third-largest software exporter. In an interview, Kurien observed, without identifying any competitor by name, that some of those he would have counted in the “rational” pack earlier have now moved to the other side.

Analysts believe that Infosys which has traditionally been extremely profit-margin conscious, is now beginning to show increased flexibility on pricing and greater willingness to take on deals which it earlier would have shunned. Infosys, which has been outpaced by competitors for about two years, has been under pressure to grow faster.

Over the last two quarters, the company has indicated that it has adjusted its tactics to meet the demands of growth as an important priority. “Infosys’ recent flexibility on pricing and deal structures have been led by a desire to protect turf in a slowing market with enhanced competition,” wrote veteran IT analyst Kawaljeet Saluja of Kotak Institutional Equities in a report analysing Infosys’ results for the December quarter, when it surprised the Street with unexpectedly strong performance. “A deal win for Infosys means a deal loss for another vendor, who may not necessarily get their share of business and can drive a competitive response.”
Via : ET
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One Comment

  1. ReubenGlass
    Posted on May 7, 2013 at 1:46 pm

    If you want to save your time and money then India is right choice for your outsourcing software development requirement.

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