 "For a change, IT services firms say 'small is beautiful'")
Indian information technology companies are chasing smaller deals as outsourcing contracts surge while their value shrinks.
According to ISG, an outsourcing advisory firm, 451 contracts were signed in April-June 2015, 48 per cent more than the previous quarter and the highest in the last two years, but the annual contract value rose only 24 per cent to $6.2 billion.
“The increase in the number of deals was led by a reduction in contract duration amid new technologies and operating models. Both new contracts as well as restructuring contracts bounced back sharply in April-June on a sequential basis,” Apurva Prasad, a research analyst with Reliance Securities, said.
This shift is happening because international clients are focusing on new technologies like cloud, mobility, social media and analytics. Clients are not focusing on transforming their entire infotech infrastructure, which tend to be multi-year and multi-billion dollar contracts.
“The annual contract value in the first half of 2015 was similar to pre-recession levels but with almost double the number of deals, highlighting the impact of newer technologies,” equity analyst firm Barclays said in a recent report.
Tata Consultancy Services, Infosys and Cognizant are thus chasing smaller contracts. Infosys added 79 clients in April-June, one of the highest additions in the recent past. According to Vishal Sikka, chief executive officer and managing director, Infosys, smaller deals allow continuous engagement with large clients, especially in newer technologies. “The size of such new deals may be small, but their impact on the other deals is huge. You might to do $1 million or $ 0.5 million projects with one of the top 10 clients, but it will instill confidence in them that the other stuff moves forward,” Sikka said.
According to ISG, infotech outsourcing deals worth $8.1 billion were signed in January-June, a dip of 19 per cent from the corresponding six months of 2014. Business process outsourcing deals rose 4 per cent to $3.1 billion. Only three large deals with contract values of over $100 million were signed in April-June. Prashanth Aluru, a partner with Bain & Company, said multi-billion dollar deals were being broken down because clients did not want to invest all the money in one bundle.
“There is more focus on customer-centric growth among infotech services companies. They are looking for more business from existing clients instead of adding new ones,” he added.
ISG estimates small deal trend is likely to continue. Annual contract values could see double digit growth in July-September as Europe and smaller companies increased contract awards, it added.
Besides, deals with a total contract value of around $250 billion are expected to come up for renewal over the next three years. These contracts will have a significant amount of cloud-based transformation, consulting and business process outsourcing elements that could intensify competition among vendors.
According to ISG, an outsourcing advisory firm, 451 contracts were signed in April-June 2015, 48 per cent more than the previous quarter and the highest in the last two years, but the annual contract value rose only 24 per cent to $6.2 billion.
“The increase in the number of deals was led by a reduction in contract duration amid new technologies and operating models. Both new contracts as well as restructuring contracts bounced back sharply in April-June on a sequential basis,” Apurva Prasad, a research analyst with Reliance Securities, said.
This shift is happening because international clients are focusing on new technologies like cloud, mobility, social media and analytics. Clients are not focusing on transforming their entire infotech infrastructure, which tend to be multi-year and multi-billion dollar contracts.
“The annual contract value in the first half of 2015 was similar to pre-recession levels but with almost double the number of deals, highlighting the impact of newer technologies,” equity analyst firm Barclays said in a recent report.
Tata Consultancy Services, Infosys and Cognizant are thus chasing smaller contracts. Infosys added 79 clients in April-June, one of the highest additions in the recent past. According to Vishal Sikka, chief executive officer and managing director, Infosys, smaller deals allow continuous engagement with large clients, especially in newer technologies. “The size of such new deals may be small, but their impact on the other deals is huge. You might to do $1 million or $ 0.5 million projects with one of the top 10 clients, but it will instill confidence in them that the other stuff moves forward,” Sikka said.
According to ISG, infotech outsourcing deals worth $8.1 billion were signed in January-June, a dip of 19 per cent from the corresponding six months of 2014. Business process outsourcing deals rose 4 per cent to $3.1 billion. Only three large deals with contract values of over $100 million were signed in April-June. Prashanth Aluru, a partner with Bain & Company, said multi-billion dollar deals were being broken down because clients did not want to invest all the money in one bundle.
“There is more focus on customer-centric growth among infotech services companies. They are looking for more business from existing clients instead of adding new ones,” he added.
| TECH THAT |
|
ISG estimates small deal trend is likely to continue. Annual contract values could see double digit growth in July-September as Europe and smaller companies increased contract awards, it added.
Besides, deals with a total contract value of around $250 billion are expected to come up for renewal over the next three years. These contracts will have a significant amount of cloud-based transformation, consulting and business process outsourcing elements that could intensify competition among vendors.