Outsourcing contracts worth $114 billion in the IT sector are coming up for renegotiation in 2014.

A total of 1,316 commercial contracts will expire, the incumbent providers will face the challenge of holding on to their customer base in the face of competition and demand to keep costs down, according to Momentum research from the US-based Information Services Group (ISG), a global technology insights, market intelligence and advisory services company serving over 500 clients.

Of the expiring contracts by total contract value (TCV), 47 per cent will be in Europe, Middle East and Asia region, 39 per cent in the Americas and 13 per cent in Asia-Pacific.

Twenty-one different vertical industries claim at least $1 billion TCV in expiring contract value. Telecom has the highest expiring TCV at $23.7 billion, followed by banking at $11.8 billion, transportation at $7.7 billion, media at $6.7 billion and diversified financials at $6.5 billion. Indian service providers compete with global players.

The contracts expiring in 2014 are up by 4 per cent from 2013 and up 19 per cent from 2012.

Sid Pai, Partner and President, ISG Asia Pacific, said, “it is a fertile area of opportunity for Indian companies that have focussed on this market for several years. Indian companies can grab 30-40 per cent of the total contracts, but will face tough challenge from new comers who would like to penetrate this lucrative market.”

Three factors are driving the surge in expiring contracts. They are an increased number of contracts with shorter time frames, an increased number of clients interested in renegotiating contracts midway to achieve cost savings in the short-term and an increased number of clients willing to take scope from an incumbent provider and award it to best-of-breed providers as a result of more mature governance processes today.

Most clients who believe they are getting quality service at a fair price will renew their agreements with the incumbent service providers. However, as their governance and service integration processes continue to mature, clients are more willing to reconsider other service providers if they feel they are paying too much or are unhappy with their provider.

This means that incumbent providers will need to work hard to retain their clients as the competition for wallet share heats up, ISG said.

Service lines The service lines with the greatest number of expected expirations include infrastructure (399 contracts), application development and maintenance (288) and full-IT outsourcing (150) engage- ments.

>raja.simhan@thehindu.co.in