Single vendor outsourcing contracts shrinking

MUMBAI: Indian IT industry has moved from `formation to consolidation' stage in the last five decades to become the preferred destination for outsourcing.

With the domestic market also taking serious note of outsourcing in the last two years, it is expected to grow significantly, according to Kapil Dev Singh, country manager, IDC India Ltd.

Speaking on The Rise of Outsourcing in the Indian IT Market at NASSCOM 2006, Singh said the domestic IT market has been on the increase and would register a compounded annual growth of 17 percent for the 2004 — 2009 period. Simultaneously, the PC market would grow by 53-59 percent.

Singh said that the domestic IT services market is estimated to be around Rs 1,03,608 million. However, only 45 percent of the overall potential market size of Rs 2,28,132 million has been tapped.

"Today outsourcing is seen as a business decision, and not as a technology decision," he said.

No increase in domestic outsourcing



Meanwhile, Prasanto Kumar Roy, president and chief editor - Business Magazine group, CyberMedia India, observed, “there is no domestic outsouring rise as yet.”

Detailing the IT services market, Roy said that the market is estimated to be around $37 billion during the current fiscal. "Out of this, still two-thirds are exports," he said.

Moderating the panel discussion, Roy said that India is witnessing two kinds of outsourcing. "A single vendor outsourcing where companies like Bharti outsourced their entire IT infrastructure to a single vendor IBM; and companies like Tata Steel

and Tata Teleservice outsourcing it to multi-vendors like TCS and others," he observed.

Participating in the discussion, Bhaskar Pramanik, managing director, Sun Microsystems India Pvt Ltd, said that the deal size of single vendor contracts is coming down.

"In 2003 there were around 29 billion dollar contracts. In 2005, it came down to 17 deals. Similarly deal size between $100 million to $ 1 billion to a single vendor has down by 22 percent. At the same time, multi vendor outsourcing is increasing" he said.

Single vendor contracts are shrinking due to the fear of locking with a particular vendor. "If we speak from an India perspective, India is not a single market. It is like a different market with different requirements. For India outsourcing is not new. It begins from the household activities as well as in the businesses. If we look at IT, 70 percent of it could be outsourced. But still we have not reached that level," Pramanik said.

Giving a services perspective of outsourcing, K K Iyer, partner, Accenture, said segments like retail and utility offer huge opportunities for outsourcing.

Utilities can look at making investment in plugging huge distribution losses. The companies that look at outsourcing think that they are giving away the control. But that is not the fact, he said.

Talking on the user perspective, Arvind Tawde, VP and CIO, Mahindra & Mahindra said, "M&M has looked at outsourcing because of globalization. If we need to compete with global companies, it becomes essential to outsource some of the activities. But before outsourcing, one has to look whether to outsource business processes or business strategies.”

Satish Naralkar, MD and CEO of NSE.IT gave a brief outline of his company's outsourcing role.