CIOL:India outstrips China in domestic IT outsourcing

India outstrips China in domestic IT outsourcing

Last year, India saw IT services deals worth $2.6 billion

Wednesday, January 31, 2007

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BANGALORE: While the maximum demand for outsourcing contracts typically comes from the North American and European markets, the Asian market is also fast catching up in terms of demand for IT services.

The only possible downside about the Asian market, however, is that it is a “lumpy market” meaning that outsourcing opportunities are not predictable.

Surprisingly enough, barring the usual outsourcing suspects in Asia Pacific-Japan and Australia, there is a significant uptick in demand from India. According to technology sourcing advisory firm, TPI, in 2006 alone the country saw closed transactions worth $2.6 billion. The Middle Kingdom paled in comparison at a mere $0.469 billion in the same period.

Growth of demand in Asia Pacific is driven by Australia (32%), Japan (27%) and India (25%). “India is a significant market to watch. There is larger demand in India-around four times more-than China. Future growth for service providers in Asia would be from Australia and India,” said Siddharth Pai, partner and managing director, TPI Advisory Services India.

Some of the major transactions in India last year included Ericsson-Bharti Airtel, Bank of HP-Baroda, Wipro-Dena Bank and Yes Bank, TCS-Tata Teleservices, TCS-Tata Steel.

Most of these deals were in the BFSI, manufacturing and telecom verticals.

If market research agency IDC India is to be believed, there could be more such deals for the taking in 2007. It has predicted that India's domestic IT market spend would grow at 21.5 percent this year at Rs 75,891 crore (around $17 billion). Of this, it estimates the investment in system integration services in 2007 to be around $8.7 billion. Global IT services companies like IBM, HP and domestic players like TCS and Wipro Infotech are some of the leading players who are tapping this booming market.

Given these numbers, it is time export-oriented Indian IT players took a closer look at the home opportunity.

Towards annualized contracts

Pai also described some broader trends in the global market. One important trend that could be a harbinger of the changing market is that mega deals are giving way to mega-relationships. Explaining this, he said that large billion-dollar, multi-year transactions are being divided up among many vendors and also that customers are preferring to sign up service providers in limited two-three year relationships. “The market is moving from total contract value (TCV) to annualized billing.”

Customers are opting for these deals since it offers them flexibility, gives them a portfolio of vendors and increases the competitive level among the suppliers. “Competitiveness helps the clients since they can get the best value and discounts. Not just that they get to choose best of breed service providers for various areas and for future deals, they could negotiate on the deal valuation based on the competitiveness of the various suppliers.”

A few of the recent deals won by Indian players are cases in point. Qantas split its $142 million, multi-year contract between TCS and Satyam.

Besides annualized contracts, Pai said that TPI is now being roped in to advise on deals that are not based on a written transaction, SLA or deliverables that occur as a result of spillover from existing projects. “We are being called to rationalize contracts that are based on staff augmentation or in other words based on the provision of people deployed on the projects.”

© CyberMedia News

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