Indian IT companies gain level playing field against MNCs

Indian IT companies gain level playing field against MNCs

A just released TPI report says the total value of outsourcing deals signed in July-September quarter, declined by 20 per cent both sequentially and year on year, to $14.1 billion. Though outsourcing deals typically dip in the third quarter, 2010 saw the lowest third-quarter in five years, notes TPI.

TPI, the world’s largest sourcing advisor, tracks outsourcing contracts valued higher than $25 million. Interestingly, the average size of contracts have also come down and are now within the reach of Indian firms, which have  traditionally been excluded from big-ticket outsourcing deals.  According to TPI data, the average contract value of new outsourcing deals dipped from $358 million in 2000 to $105 million in 2010.

Wipro Joint CEO Girish Paranjape told Deccan Herald that Indian companies were traditionally excluded from large, long-term deals as they were seen as having limited capability to take over assets and people. The smaller deals have created a level playing field between MNCs and Indian companies, he added. Explaining the shift in the outsourcing industry, TPI says the seven to ten year contracts, which were awarded in the early 2000s, are now coming up for renewal. Customers are reportedly opting to restructure the deals seeking quicker returns and lower risk.

This year restructured deals have already accounted for 34 per cent of the total value of contracts signed so far, compared with typically about 20 per cent over the past three years, says TPI.

Industry watchers say restructuring may further lead to smaller deal sizes and work in favour of Indian firms, who have steadily eaten into the market share of traditional outsourcing MNCs such as IBM, HP, Accenture, CSC and Capgemini.

In 2000, just 2 per cent of the outsourcing deals, worth higher than $25 million, went to Indian firms, notes TPI. The number increased to 27 per cent in 2010. In the same period, the MNC share of the deals in the same value segment dipped from 65 per cent to 42 per cent. 

The impact of Indian firms on the outsourcing market is modest but increasing in importance, says TPI. The next five years will see head-to-head battles between Indian firms and MNCs, who still control the lion’s share of the market, it notes.