At the recently concluded World Economic Forum’s Annual Meeting in Davos, Infosys co-chairman Kris Gopalakrishnan expressed optimism that 2013 is going to be a better year for Indian IT than 2012. Partly, this optimism is justified by the surprisingly strong and widespread results posted by the big five of Indian IT in the last quarter of 2012. Many expect the December figures were just the beginning of the return of the kind of growth that the Indian IT has experienced for much of its life. Another reason for the revival hopes is the very large outsourcing deals that are coming up for renewal this year and the expectations that the Big Five can certainly get or increase their bite from this luscious cake, valued at over $50 bn. This renewal season could have a very major impact on Indian IT as most of them have been struggling to bag deals of more $25-30 million, while in the heyday, the deal sizes often exceeded $50-75 mn. Since 2008, most IT services firms have been obliged to fight for smaller businesses as their clients have preferred to split deals into much smaller sizes and use multiple vendors for each deal, cutting short not only the value of the deal but also the duration of these deals. This also posed a serious problem for the top brass of Indian IT as they have remained unsure of the numbers even in the short term.
But all that is set to change, at least start to change. The renewals slated for 2013 include global FMCG heavyweights like Unilever and arch-rival Proctor & Gamble as well as financial institutions American Express and Bank of America. Each of these deals is close to $8 bn and the duration is closer to a decade, ensuring that the winners of the deals can enjoy longer-term certainty of business. But bagging these deals is going to be anything but easy as there will be tremendous competition from all kinds of IT services companies – Indian and global alike – and also the clients are likely to use this competition to drive a very hard bargain on pricing and other terms with the successful vendor. An example of what may lie ahead was seen when HCL managed to take Deutsche Bank deal away from Infosys largely through extremely aggressive pricing.
The world of IT services definitely has changed since these deals were initially signed, around 2002-03. For one, the global IT giants have very successfully copied the Indian IT model and set up huge presence in India, permitting them to have almost the same cost arbitrage as their Indian rivals. Thus, TCS, Infy etal can be sure to face IBM, Accenture and CapGemini etc when the bids for these deals are opened. The Indian IT can perhaps gain confidence from their own growth trajectory and the dramatic image makeover that most of them have gone through in the past decade. No longer considered the sweatshops of IT, the large Indian IT vendors can compete on almost any value proposition with their global rivals. They have also built up envious cash reserves and have global scale and presence that can match their rivals’. A report by Standard Chartered bank estimated that nearly 1100 outsourcing deals, valued at over $200bn, would be up for renewal till 2016. This should certainly cheer the Indian IT as they can definitely build on their learning experience and the cash reserves in order to be ready for the big battles that lie ahead.