BANGALORE: Tech biggies such as TCS, Infosys, Wipro and HCL are all set to get new outsourcing contracts worth $4 billion from top customers
including British Telecom, Citi, GE and Bank of America this year. In a bid to cope with their tightened budgets, these companies plan to send their information technology works to offshore locations such as India.
Among some of the top deals coming to India, $250-million outsourcing contract being considered by Australian phone firm Telstra is expected to be finalised by the end of January, followed by several contracts worth between $50 and $100 million from Citi, BT, GE and other customers.
Outsourcing expert Sabyasachi S Sathyaparasad of Mindplex Consulting said that the new deals will include long-term application maintenance contracts. However, even as these customers seek to award new projects by renewing existing contracts, Indian vendors may lose over $300 million because of lower billing rates.
"Many large customers have reduced their IT budgets by up to 10%, and they plan to seek more cost and business output-based deliverables from service providers in these difficult times," he said.
Telstra plans to reduce the number of vendors it works with in order to have one supplier for each domain across the product lines for bringing down the cost of managing IT systems. "The company wants to move more than half of this contract to an offshore location such as India, and that is why pure Indian offshore vendors including Infosys, Satyam and EDS-Mphasis are being seriously considered," said a senior executive at one of the top tech firms bidding for the Telstra contract. He requested anonymity.
Reducing the number of IT vendors from four to two is part of Telstra's overall transformation strategy. The company plans to bring down the number of IT systems from around 1,350 to almost 300 by 2010. On the procurement side, Telstra has already reduced the number of suppliers by almost 20%, translating into saving of $226 million this year. At a time when companies are seeking ways to cut costs, Best Buy, Visa and Nisaan are aiming at achieving significant savings through renegotiation and renewal of contracts.
Last year, when BT renegotiated its contract with Xansa, the company aimed to save around $123 million over next six years. However, BT's restructured deal also witnessed more work for Xansa, estimated to be almost 80% of BT's overall back-office projects.
Customers such as Citibank are also seeking to send more IT projects to India. "As we face these (economic) challenges, there will be greater demand for moving more work to offshore locations," Jagdish Rao, global technology head for Citi, said during his visit to India last month.
Mr Rao was in India to announce a six-year and over $500 million master services agreement with Wipro for delivery of infrastructure services and application development. As part of the deal, Wipro acquired Citi Technology Services for around $127 million, which came with Citigroup's commitment to outsource all future infrastructure management contracts to the company.
Meanwhile, companies such as Tesco, the world's third biggest retailer, are already seeing their offshore outsourcing initiatives fetching rich dividends. Mike McNamara, director operations and information technology at Tesco, told ET last week that his company would continue to outsource more work to India at its captive centre and to top Indian software vendors such as TCS and Infosys.
Tesco saves around $60 million every year by outsourcing works to India, which was a compelling enough reason to funnel more work to the country, he said.
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