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Don’t expect Indian IT sector to reboot this year
January
4, 2010
Source: IANS
NEW DELHI: India’s $60-billion technology services industry may have hoped for
a rebound in 2010 after gloomy 2009, but days into the New Year, Industry
officials, analysts and other experts believe that India’s IT sector, a
habitual growth monster until the crisis period last year, is unlikely to
return to the ‘business as usual’ situation that existed before the crisis and
will have to soon recalibrate itself to a new reality and new growth
strategies.
The US and European markets, which account for about 80% of Indian software
exports, are yet to show signs of a pickup in demand for outsourcing that was
expected in the run-up to New Year. Taking note, industry lobby group Nasscom
said it does not see any immediate upward revision in the exports growth
target, which it had pegged to an all-time low of 4-7% in mid-2009.
“It’s a demand environment that appears permanently damaged,’’ said Vineet
Nayar, CEO, HCL Technologies. Other business services providers like Infosys
Technologies, Wipro Technologies and Genpact share the same sentiment.
After a compounded growth of over 30% since the 2003-04 dotcom bust, software
export growth fell to 16.3% at $46 billion last fiscal against 27% at $40
billion in 2007-08. Last year saw Indian companies embracing survival
strategies, moving to fixed costs and bundling software services with
back-office operations and remote infrastructure management, to retain
customers and fuel growth.
HCL’s Nayar calls it coping with a new ‘normal’ where, “we will see lower
‘normal’ levels of expenditure, lower volumes, hard costs, lower margins and
lower annual increases”.
Besides tough global headwinds, Indian providers are also up against a stronger
rupee that will erode margins. A Bank of America-Merrill Lynch (BoA-ML) tech
sector report expects the Indian currency, which has appreciated about 4%
vis-à-vis the dollar in the last quarter, to strengthen further over the next
few quarters at Rs 45 by March-end and Rs 43 by December 2010.
That is bad news for Indian providers, already coping with higher costs due to
wage hikes and increased sales and marketing spends.
“Budgets could remain flat for sometime,” says Suresh Vaswani, joint CEO, Wipro
Technologies adding that customers continue to demand more for less.
BoA-ML also notes that Indian majors will face stiffer competition from global
vendors. New competitors such as Dell, which bought out Perot Systems in
September 2009 to strengthen its services offering, are beginning to turn the
heat on Indian IT. Dell, for instance, plans to target $20-50 million
contracts, the sweet spot for Indian technology majors.
Others such as IBM, Accenture and HP now have strong low-cost service delivery
options. Their deeper domain expertise also gives these firms another edge over
Indian providers.
And Indian tech companies may be among the few sectors that see little hope in\
the recovery gathering pace. In any case, these companies don’t see a return to
the giddy business growth of yesteryears. To corroborate this, HCL’s Nayar
points to data from S&P 500 companies.
An analysis shows that 75% of S&P 500 companies recorded a negative growth in
the June 2009 quarter. Though the situation is expected to reverse by this
June, only 24% companies are expected to grow more than 10% from the year
before compared to 50% of them in 2008.
“Clearly, we are looking at a market of different shape and size ahead,” says
Mr Nayar. Increasing costs are another worry. The BoA-ML report sees wages and
marketing spends climbing as companies target new service lines, markets and
geographies.
So how will companies counter the likely stresses and strains of 2010?
Companies will have to evolve new business models to grow in a tough market
environment, says Nasscom president Som Mittal. Wipro, for instance, sees new
business coming from adoption of cloud computing, green and collaboration
technologies. The company is also eyeing more business from the Indian and
Middle East markets.
“Customers are not looking at just any vendor but also transformation partners
who have their skin in the game,’’ says Mr Vaswani. Infosys, meanwhile, is
ramping up its sales force and adding practice and product specialists to its
ranks.
BoA-ML recommends that to cope with the new market dynamics, companies may
require more locals onsite, better system integration skills, more contracts on
pricing models like `gain sharing’ (pricing linked to revenue), automation for
infrastructure services and so on.
“The way forward is disruptive innovation,” says Mr Nayar, adding that
competing with established leaders in their business models can only bring
incremental growth.
“Global CIOs today are not looking for technology solutions. They are looking
for business solutions. So from offering new delivery models such as pay per
use to taking over entire IT infrastructure of the client to large multi-year
SAP implementations, we are doing it all.’’
Whatever the strategy, the beginning of 2010 is not different from that of 2009
— uncertainty dominating the minds of company heads, rather than the cautious
optimism they were predicting in December.
“Countries and companies still have job losses to think about. If job losses
keep rising, it’s a problem,’’ says Pramod Bhasin, president & CEO,
Genpact.
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Indian IT cos set sights on clients' captive operations in US, Europe
January 4, 2010
Source: IANS
NEW DELHI: For India’s top tech firms seeking to acquire an existing back
office business of a large customer, the next big opportunity is emerging in
the markets of the US and Europe as customers seek to sell captive operations
in their home countries.
Having divested their captive operations in emerging countries such as India,
some companies are now in talks with companies such as Genpact, EXL Service
Holdings and Quatrro to sell their assets. Such transactions are lucrative
because they can bring niche expertise at deals worth up to $200 million.
“There are few captives on the block and we are open to acquiring them. Such
deals help get access to new customers besides product knowledge,” said Pramod
Bhasin, chief executive of Genpact, the largest back-office firm.
Indeed, the recent acquisition of American Express’ travel services captive in
India by EXL Service Holdings for $30 million not only provided the latter with
an experienced management team, but also capabilities set in analytics,
exception processing, and transaction processing.
“Several captives in these countries are not only burdened with high cost
structure, but also lack capital to build on offshore capabilities. Moreover,
their ability to add value is limited,” said Rohit Kapoor, president and chief
executive of EXL.
EXL may shortly strike a captive deal in the insurance or banking space in the
US or Europe. “We are in advanced talks with a couple of US and Europe based
captives and onshore companies for a possible buyout. The deal, if successful,
will give us a presence in these markets,” Mr Kapoor said.
Global outsourcing experts say captive centres are a drain on parent companies,
and more so in tough times, and represent a large fixed cost. Their sale can
generate quick cash for the parent company. “Valuation is challenging and far
sweeter than what we thought it to be.
We are working on deals ranging from $20-200 million essentially in the banking
and financial services sector,” said Raman Roy, managing director of Quatrro
BPO Solutions.
“Indian companies gain because even after the sale, they continue to get large
5-7 year deals with the parent firm. This happened in the case of Citi.
Besides, there is the geographic, service portfolio and talent pool expansion
advantage linked to such transactions,” said Uday Parmar, global sourcing
consultant at outsourcing advisory firm EquaTerra.
Citibank sold its Indian back office business to TCS for around $505 million in
October 2008, and Citi Technology Services for around $127 million to Wipro in
December the same year. Both these transactions came with assured outsourcing
business of around $3 billion together for these vendors.
Although demand for IT outsourcing services was subdued in the first half of
2009, the year did see some major deals being sealed. Early last year, EXL
acquired the back-office unit of US-based logistics firm Schneider National in
Czech Republic.
In October, Cognizant Technology signed an agreement to buy out the captive
Indian arm of UBS Group for $75 million. Infosys BPO got into a definitive
agreement to acquire all of the outstanding interests of McCamish Systems, a
small BPO company in Atlanta.
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India to be Motorola's R&D hub on wireless broadband
January 4, 2010
Source: ET Bureau
NEW DELHI: The decision of state-owned BSNL’s board on Wednesday to put its
tender for 93 million GSM lines ‘on hold’ will result in the telco’s $1-billion
IT outsourcing contract also being put ‘on hold,' an executive with the PSU
told ET. This is because, the $1-billion IT contract is linked to the 93
million GSM lines taking off, this executive added.
The delay will impact IT firm HCL Infosystems, which will be supported by HP
and Convergys for the contract and is assured of 50% of BSNL’s Rs 2,000-crore
IT deal, as it was the lowest bidder for all the four zones. The project was
split into four zones to allow companies to bid separately for each zone.
Other IT majors that will be impacted include TCS which can bag the remaining
50% of the contract and the Mahindra Satyam/Spanco combine which stand a chance
to win part of the deal.
As first reported by ET, the BSNL board on Wednesday decided to put the world’s
largest ever telecoms equipment contract worth about $10 billion on hold after
the Central Vigilance Commission (CVC) launched a fresh probe into the telco as
the anti-corruption body’s guidelines forbid post-tender negotiations with
successful bidders.
Sweden’s Ericsson had emerged as the lowest bidder in the North and South East
zones while China’s Huawei was selected for the South and West Zones. The DoT
too had earlier asked BSNL not to renegotiate the price with lowest bidder
Ericsson since the move would violate CVC guidelines.
But, BSNL executives point out that the telco had entered into post-tender
negotiations with Ericsson since this could result in a 20-25% reduction in the
price.
BSNL’s IT outsourcing deal stipulates that a company can be awarded only a
maximum of two contracts which implies that a single firm cannot provide IT
services in more than two regions. This implies, HCL infosystems, for whom HP
which will supply hardware and systems and Convergys will provide billing
solutions, and has been selected as the lowest bidder or L1 in all the four
zones, will have to opt out of two regions.
Tata Consultancy Services (TCS) is the second lowest bidder in three zones -
North, South and West, while the Eastern region Mahindra Satyam/Spanco combine
was chosen as L2 (refer table). This implies, the Mahindra Satyam/Spanco
combine stands a chance only if HCL opts out of the East Zone.
On the other hand, TCS, which is assured of the contract in at least one zone,
can double its deal size if HCL does not opt out of the East Zone.
Controversies around its tenders have resulted in BSNL not being able to place
any significant orders for equipment over the last three years during which the
mobile market in India recorded the highest growth globally.
This has also resulted in BSNL, which was challenging Bharti Airtel for the top
spot in the mobile space in 2006 now being pushed to the fifth spot after
Airtel, Reliance Communications, Vodafone Essar and Idea Cellular. Besides,
Tata Teleservices is also poised to overtake BSNL in mobile customers within
the next couple of months.
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