Indian IT gears up for $50 billion renewals

About 196 IT deals worth more than $100 million each, and adding up to $51 billion, are coming up for renewal in 2018. Of these, some 12 are multi-billion-dollar deals, the largest of which is Siemens’ $7.2-billion contract with French IT giant Atos, according to research firm Everest Group.

As in previous years, this is an opportunity for Indian IT firms that have been steadily increasing their share of global outsourcing contracts. Of the 196 deals, only four are currently led by Indian IT firms, though these firms may be present as secondary partners in some of the other deals.

Also, the opportunity for Indian IT sector is rising because many of the large deals today are being broken up into smaller contracts. Barring TCS, the others are typically not considered for billion-dollar deals, but if these same deals are broken up, the others get to pitch.

IT research firm ISG did a study in 2016 that analysed 180 deals to see what happened to incumbent vendors when a contract came up for renewal. It found that where clients choose to do competitive re-negotiations (and that’s 66% of all contracts), the incumbents lost the entire contract in 47% of the cases. And in 32% of the cases, the incumbents witnessed a drop in scope with clients moving some part of the contract to new service providers.

ISG found that Indian service providers are also gaining through consortia deals that are led by large MNCs. “We found that large Indian providers managed to get around 30-35% of the share that the incumbents lost,” said Rajesh Gupta, partner in ISG’s India operations.

Jimit Arora, IT analyst in Everest Group, said the billion-dollar deals coming up for renewal have the following characteristics: Infrastructure transformation to cloud, government and defence contracts, integrated contracts (that combine application development & maintenance, analytics, etc), large, multiyear BPO or BPaaS (business process as a service) deals in relatively mature areas, and deals with asset/people transfer (such as the takeover of a global in-house centre of an MNC).
“The vendors that will tend to continue to win will be the traditional global majors that can structure asset-intensive infrastructure deals (IBM, Atos, DXC, NTT Data). In the government and defence sector, you would not expect the Indian service providers to be as relevant. But you will likely see them succeed in categories like integrated deals, BPO/BPaas contracts or deals with huge asset or people transfer (think of TCS-Nielsen, Wipro-Atco),” Arora said.

However, the challenge for Indian IT service providers is the changing character of contracts, as clients move towards newer digital offerings where there are a number of newer players, and where some big players like Accenture are seen to have built greater expertise than the Indian providers.

London-based research firm Ovum’s estimates for Indian IT’s share of the global services market in 2017 suggests that there was at best a marginal growth from 2016. “A lot of the workload is being moved to cloud and that market is in the hands of vendors like AWS, Microsoft Azure, etc. The Indian providers and other systems integrators are doing the integration work and building things like analytics on top of these cloud-enabled workloads but the decline in traditional lines is eating up the double-digit growth rates they enjoyed during the last decade,” said Hansa Iyengar, IT analyst with Ovum