October Surprise: Deal Surge, and India Goes Large

The past year has brought a striking slowdown in new outsourcing contracts, but October appeared to break the trend. I offer some commentary on that month here, doing so in the context of the entire year.

Providers got over $15 billion of total contract value (TCV) in October, the highest TCV tally for a single month in the past two years and almost twice the TCV as the next highest month. Three mega deals accounted for almost $8 billion of the TCV, and one -- IBM and AT&T – accounted for $5 billion. Business-process deals figured prominently in the month.

November doesn’t look nearly as good, but more about that month in a moment.

India-based service providers inked several mega relationships in October, in keeping with a recent trend: While many consider 2005’s ABN Amro/TCS/Infosys deal as the high-water mark for Indian providers, since then we’ve seen these providers expand their client list to other large customers. And, in some cases they have done so without employing the relatively slower “penetrate and radiate” method that involves getting a foot in the door then selling the client more services over time. Rather, the India-based providers are showing their ability to win some truly big deals.

While the Indian providers may still be buying market shares (think deals like TCS-Pearl, Genpact-Citigroup and Philips-Infosys) or winning business with a long-time captive client (BT-Tech Mahindra), they also are starting to compete and sometimes win on very large deals that don’t involve clients they’re already working with.

The next trend to surface may find smaller India-based service providers (EXLService, FirstSource, WNS, HCL) starting to look outside their captive client base for a big deal.

Now the cautionary kicker: We have not seen many deals in November, and if this month and December revert to the pattern of the rest of 2007, October could prove to be a blip.

Look for lots more detail when TPI hosts its next Index call in January.

Comments

[Phil Fersht]

Peter,

One of the reasons we're seeing a slowdown in these "big bang" BPO deals is as a result of companies taking a more cautious approach to moving over processes to a third party. When you look at the growth in single-process and smaller sized contracts, which don't normally make the media radar, there is a lot of intense activity happening. The "start small" approach seems to be the way to go for most companies today, especially as the industry is still maturing. Bottom-line, outsourcing is here to stay, but the pace at which it is happening is more cautious than many of us had predicted. The recent economic prosperity has also enabled many firms to take their time over difficult decisions, but I'd expect the pace of deals to pick up if we move into an economic slowdown next year.

PF

[Subir Dhar]

Hi,

I liked your observation on the Indian IT firms focusing to win large outsourcing deals. Most of the large Indian IT firms have either a "Large deal" group or are in the process of setting up one.

Till now, the top 5 Indian IT firms were likely to win large deals, but the mid tier firms will increasingly emerge in the scene. One reason is that even the mid tier firms are crossing the $ 1 Billion threshold, and clients are likely to be satisfied with their financial stability and capability to execute large engagements. Apart from this, the mid tier firms are focusing on certain niche areas - such as embedded systems, or infrastructure services etc rather than being a "generalist" in IT services - thus will gain greater acceptance in multi vendor situations.

Lets see how 2008 unfolds!!

Regards

Subir Dhar
Bangalore