Source: economictimes.indiatimes.com
MUMBAI: The shape of outsourcing is changing. Indian IT companies, which have traditionally fought shy of taking on any projects involving transfer of assets and people, are now increasingly becoming open to them. In the last one year, large Indian IT firms have announced five such deals that involve taking over some part of the client’s facilities or staff.
Tata Consultancy Services (TCS), the country’s largest software exporter, has so far clinched four deals involving the transfer of hardware and software assets and people. Last month, as part of a contract it won from Nokia-Siemens Networks to provide research services, TCS also took over 90 employees of Nokia-Siemens. “It is a natural evolution. When the scale of opportunity is big, then asset takeover is one of the options. In general, we don’t takeover people or assets unless we believe it is strategic to us, and the people are bringing knowledge that is essential,” said TCS chief financial officer S Mahalingam.
Through the transfer, TCS gained a delivery centre staffed by locals in Germany and also a knowledge pool that will help it win more telecommunications clients. The move is strategic in the context of how Indian IT players are trying increase revenues from continental Europe, which is a largely served by local vendors.
The ability to take on assets and people also comes from increasing size. This gives them to ability to take on people in countries where labour costs are higher, without hurting their margins substantially. “So far, Indian players did not have the maturity to take over assets and people. Now they have the balance sheet strength to do it,” said Sid Pai, partner and managing director, TPI India, which advised on the landmark multi-billion dollar ABN Amro outsourcing deal in 2005.
The asset takeover route has become inevitable if they want to participate in large outsourcing deals. “Till recently, Indian players were not invited to big deals. But that is not the case now,” said Everest Research Institute head for global sourcing Nikhil Rajpal. Large global players such as IBM and EDS have been taking over assets and people for many years now. IBM deployed a similar model in its billion dollar outsourcing deal with Bharti, where it took over all its IT outsourcing functions.
“In this deal, we opted to take over the people but not the hardware and software assets. But whatever new hardware and software assets were brought in, were on our books,” said IBM vice-president of client sourcing Ashish Kumar. Wipro inked a similar deal with the Future group for the IT operations of its retail entity, Pantaloon Retail.
“Vendors evaluate the suitability of the people, the value of the asset and whether they want to expand into a certain geography while entering into these contracts,” said Pai. Companies also evaluate the risk involved and if they will be able to get the margins they desire before signing such contracts. “So the issue is not just the value of the assets being taken over but also for how many years the vendor is getting the contract and how much other work can be given out to the vendor,” said Rajpal, who worked on Infosys-Philips deal, where Infosys took over 250 of Philips employees in India, in addition to the assets.
