Icing takes the cake
posted in Outsourcing News and Top Outsourcing deals, Outsourcing to India |Source: www.thehindubusinessline.com
Tech players are getting more than what they bid for in deals — call it compromise or value-addition. Looks like the ‘era’ of ‘vanilla responses’ from clients is over.
Plain vanilla cone or chocolate sundae? Depends on how hungry one is. Information technology (IT) companies in the last year have been developing an appetite for deals that do not resemble the plain vanilla ones they used to bid for in the past.
Cognizant bagged a seven-year-deal with Rabo Bank through Netherlands-based local vendor Ordina. Ordina is believed to have had to pay Rabo Bank $21 million to sub-contract the deal to Cognizant. While bagging the Kimberly-Clark deal, Cognizant also signed up to co-manage Kimberley-Clark’s one-year old ‘captive’ operation in Buenos Aires with plans to expand operations there.
Tech Mahindra won a $1-billion deal from British Telecom encompassing more than the regular software development and maintenance work. Wipro bagged the two-year Credit Suisse deal after committing to a ‘quasi’ build-operate-transfer (BOT) structure, where the former would run a captive operation for Credit Suisse in its Pune facility.
Infosys Technologies structured its seven-year $250 million deal with Royal Philips Electronics (Philips) as an acquisition and paid about $28 million upfront to take on board 1,400 employees of Philips across Poland, Thailand and India. Further, Infosys BPO will provide finance and accounting services and processing of purchase orders to Philips.
Some refer to these as compromise deals (as vendors end up receiving more than what they bid for), others call them value-added deals or simply large deals. Though the finer aspects of each deal structure may differ, it is interesting to note that transfer of client assets is common to them all.
Is this the way forward for future deals in the Indian IT space?
Life partner rather than vendor
“The era of submitting a ‘vanilla response’ is now obsolete,” says Sanjeev Nikore, Corporate Vice-President and Global Head (Sales & Marketing), HCL Technologies. “All clients look for innovative price models, which may mean co-investment or sharing risk and rewards,” he says.
Cost savings is just one of the parameters while evaluating large deals. Management of risks (say, through manpower transfer), value-added services and the ability of the partner to continuously innovate and visualise the client’s changing business are more important than a pure price play, he says.
HCL has bagged large deals in the past with clients such as Teradyne in the US (a $70-million multi service outsourcing deal where HCL took over the entire IT operations and all IT employees), UK-based DSG Group (a five-year $333 million total outsourcing deal involving acquisition of 350 DSG employees) and Skandia Group (a $250 million five-year deal that involved acquiring 250 Skandia employees.
“The philosophy in large deals is to choose a life partner rather than a vendor and the bid must reflect that spirit and maturity,” says Nikore.
Building compelling value
Such deals are in line with traditional outsourcing deals in mature markets such as the US and Europe, says Gaurav Gupta, Country Head, India, Everest Group, a research and consulting firm. “Indian companies have so far done project-based work and not developed end-to-end capability. Now they are trying to build a compelling value proposition by offering offshore, on shore and near shore options. To do this, they will need to forge alliances with local companies or centres set up by the client,” he says.
