Small is big for top IT vendors

Small information technology outsourcing deals seem to be the norm globally, and top Indian companies have picked them in large numbers.

The number of small deals valued between $5 million and $39 million increased steadily in the last decade. However, deals between $40 million and $99 million, and those above $100 million remained stagnant, according to Information Services Group (ISG), a US-based research firm.

Last year, 1,063 contracts valued between $5 million and $39 million were signed as against 673 in 2008 and 482 in 2004. Only 68 deals were signed in the $40 million to $99 million range in 2013, as against 70 in 2008 and 57 in 2004. It was a similar trend with deals over $100 million, said the ISG report. For many years, there has been a steady downtrend in deal value – both from a total contract value and annual contract value perspective. However, the number of deals has gone up commensurately, thereby keeping the market going at the same overall pace.

This is because of factors such as offshoring driving down unit price, best-of-breed contracting (where clients go to multiple providers rather than just one, based on each provider’s ability) and reduction in deal tenure, said Sid Pai, President, APAC Region, ISG Inc.

Indian vendors have benefited since the barriers to entry are now lower, and there has been a proliferation of new vendors winning significant deals that were once not on the landscape, said Pai.

The steady decrease in average deal size across the outsourcing market is broad-based and applicable for both Indian-heritage and global service providers. In fact, the share of Indian providers in large deals (total deal value over $500 million) has also increased over the last few years, said Salil Dani, Practice Director, Global Sourcing, Everest Group.

Indian companies accounted for 38 new outsourcing transactions in 2013, representing 3 per cent of the global IT and BPO outsourcing market. However, the share of India is slowly but steadily growing – a few years ago there were very few instances of Indian enterprises signing global IT and BPO contracts, he said.

For Indian vendors demand is predominantly in traditional verticals, including BFSI, travel and transportation, and telecom, he said.