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A global move away from mega IT deals and towards modular outsourcing will open up enormous opportunities for Indian vendors over the next few years, said analysts. A lot of these deals are expected in 2012 itself.
A Standard Chartered Securities report citing TPI data, said there are 199 deals with a total contract value of $38 billion, where the incumbent is not an Indian service provider. These are up for renewal through June 2012.
Near-term deal
“We see this resulting in a $7.2 billion near-term opportunity for Indian vendors. “Given the 2-3 quarter lag between deal signing and project ramp-up, we expect the near-term deal wins to reflect in FY13 volume growth for Tier-1 players,” said the analysis.
Renewal deal opportunity will be the key driver of medium-term growth, said the report.
The other reading is that mega deals have not achieved the cost savings or efficiencies that were planned.
Mr Partha Iyengar, Vice-President and Distinguished Analyst, Regional Research Director, Gartner India, cites examples of ABM Amro and GM who, over the last couple of years, have renewed their IT contracts breaking them up into smaller deals.
As a result, many Indian IT vendors such as TCS and Infosys got slices of the pie which used to go to an IBM or an HP.
There are several reasons for this, he says: “In large multi-year deals, by the end of the second year or so, it is the vendor managing the client and not the other way round. Big deals are an impediment to agility, the relationship also locks the client into doing technology in a certain way.”
The Standard Chartered Securities analysis says that there is a pipeline of over 1,000 contracts that are with non-Indian vendors of combined contract value of $207 billion due for renewal over the next five years.
“We believe $50-250 million TCV (total contract value) deal size would be the sweet spot for Indian offshore vendors and while there could be larger size deals, we expect them to be rare,” said the analysis.
Deal sizes have got smaller globally, but not smaller from the perspective of Indian IT services, said a research analyst at a foreign brokerage. “From giving deals to a single vendor for $1 billion, clients have moved towards silo sourcing for best of breed vendor. From the Indian IT services' perspective, where they would have competed in the $10-25 million space, they will now compete for the $50-100 million deals too.”
This is especially good for the mid-cap Indian companies, said an IT research analyst with another foreign brokerage. “Multinationals are reluctant to bid out projects in singularity and commit such a big amount. They are also finding that a large multiyear deal of, say, $500 million, works out to more than $500 million at the end of the period.
Breaking up projects
Another analyst with a foreign brokerage said the trend is to break up projects and first give out those with shorter term return on investment. “Cloud efficiency gains are available immediately. This space is very good for mid-cap companies. Where a Hexaware could look at $25 million deals, it can now be in the reckoning for $200 million deals, he said.”
In fact, one CEO of a mid-size Indian IT company said he would not be surprised to see multiyear projects being replaced by several 90-day projects.
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