2011 IT outsourcing: A windfall for Indian IT

BANGALORE, INDIA: IT outsourcing will offer tremendous opportunities to Indian IT vendors in 2011, according to analyst firm Ovum’s ICT Opportunity Profiler.

IT services contracts worth well over $150 billion are due for renewal in 2011 out of which over 60 per cent of the contracts are due for renewal in the private sector, Ovum said in a press release.

The Information Technology services market globally provides a huge opportunity for Indian IT vendors according to Ovum’s ICT Opportunity Profiler. 17 per cent of the contracts in the manufacturing sector, 14 per cent in telecom, and 12 per cent in the BFSI sectors are up for renewal followed by other private sector companies in industry verticals like travel, healthcare and retail in the year 2011, it added.

Government and defense, another key sector with contracts over 37 per cent for renewal in 2011, is showing great confidence in Indian IT service providers, said the analyst firm.

According to the ICT Opportunity Profiler, information technology services outsourcing contracts have witnessed an increasing trend in application development and support, business process outsourcing and IT consulting services.

During the calendar year 2010, the IT contracts awarded globally were up by almost 15 per cent in H2 2010 as compared to H1 2010, where a majority of the contracts were awarded in the government and defense, followed by the telecom and manufacturing sectors, clearly indicating a positive trend in the IT services space and improving economic scenario globally.

Commenting of the trend, Siddharth Maheshwari, research and analysis director - Ovum India said the Indian IT services providers including majors like Tata Consultancy Services, Infosys Technologies, Wipro and Tech Mahindra-Satyam are well established and poised to win some significantly deals in the year 2011.

“Existing and new companies are increasingly looking at outsourcing their IT functions to IT Services vendors to decrease costs and also improve their operational efficiencies,” he added.

Just 20 per cent of global market

However, all the Indian vendors together have captured less than 20 per cent of the global IT outsourcing market, leaving great scope for entering new markets and capturing new IT services contracts, observed the analyst firm.

The total contracts won by the Indian IT services providers during 2010 was less compared to the previous years, which can be attributed to the significant dip in IT spending by a majority of companies globally, it added. Although the value has been less, the volume of contracts won by Indian players in 2010 has seen positive trend, growing by nearly 8 per cent YoY.

IT outsourcing in the BFSI space has more than doubled in 2010, followed by government and defense in terms of volumes. But in terms of value, the government and defense contracts have risen by nearly 14 per cent, indicating more such contracts flowing into the Indian IT vendors’ accounts.

The Central and Federal government clients have shown immense faith in the Indian IT vendors by offering contracts worth well over $1.2 billion in 2010, a staggering 10-fold growth compared to the previous year. This can be noticed from the contract awarded by the UK's National Employment Savings Trust Corp to TCS, estimated to be approximately $960 million.

2010 has also been a strong year for the Indian IT vendors in the banking space growing more than 10 fold. For instance, Wipro has won a multi-million dollar contract from Citibank, in 2010.

A large majority of the contracts awarded were in the range of $40 million to $50 million, however, with a few exceptions like the $500 million contract awarded by Merck & Co. to HCL Technologies in the manufacturing sector during 2010.

Sai Chandra Kanala, Senior Analyst - Technology, Ovum India adds “2011 will be a great year for the Indian IT service providers with huge opportunities in the IT Services market. With increasingly higher technical competencies and cost advantage, and an improving global economic scenario, the Indian IT Services vendors are strongly placed to win more IT Services contracts surpassing the previous years, both in value and volume terms.”

IT services outsourcing is also witnessing an increasing trend from the European region. Companies in these regions are now willing to consider outsourcing their IT functions to IT vendors with the objective of cost savings and operations efficiencies.

In November 2010, German utility giant E.ON AG announced that it was going to outsource a large chunk of its IT operations to HP and T-Systems. E.ON cited an increasingly difficult operating environment as the driver for the outsourcing deal, which is part of E.ON's Perform-to-Win performance-enhancing program.

By divesting parts of E.ON IT, the company hopes to be better able to focus on its core business processes while also gaining from the experience of professionals within HP and T-Systems. The deal valued at approximately USD 3 billion is the first of its kind for any utility company in the world. This transformational deal will lead to more deals in the industrial and manufacturing sector in the coming years.