IT Majors See Big Gains From Small Outsourcing Deals

by CXOtoday News Desk    Mar 14, 2014

small deal

The Indian IT majors are signing more outsourcing deals than ever. But these are generally smaller and short-term outsourcing deals valued between $5 and $39 million, observes US-based research firm, Information Services Group (ISG) revealing that deals between $40 million and $99 million, and those above $100 million remained stagnant. The total annual contract value for deals signed fell 8% from $14.7 billion in 2012 to $13.5 billion in 2013, says the research firm.

The report shows that in the past 10 years, while there has been a steady decline in the total contract value, the number of deals has gone up adequately, thereby keeping the market going at the same overall pace. In 2013, over 1,000 contracts valued between $5 million and $39 million were signed as against 673 in 2008 and 482 in 2004. Only 68 deals were signed in the $40 million to $99 million range in 2013, as against 70 in 2008 and 57 in 2004.

“Large, single-sourced deals just don’t work in today dynamic business environment. Clients are seeing the impact that cloud and labor automation are having and they don’t want to a big, long-term deal that locks them into a static solution that’s going to become obsolete,” ISG partner Kathy Rudy said in a statement. She believes that clients are focused on providers that can provide solutions that meet specific needs and are willing to go to multiple suppliers that can fill those needs in an optimal way, as opposed to taking a one-size-fits-all approach where a service provider is better in some areas than others.

The IT outsourcing scenario has also become very competitive with the proliferation of new vendors winning significant deals that were once not on the landscape, and so the Indian IT majors are also gearing up to sign small, yet profitable deals.

However, the report also observes that it is not just the Indian companies that are signing short term deals. There has been a steady decrease in average deal size across the outsourcing market globally, where smaller deals having shorter duration has become the new normal.

Indian companies accounted for 38 new outsourcing transactions in 2013, representing 3% of the global IT and BPO outsourcing market. However, the share of India is slowly but steadily growing – a few years ago there were very few instances of Indian enterprises signing global IT and BPO contracts, Salil Dani, Practice Director, Global Sourcing, Everest Group told Business Line.

Indian companies are signing outsourcing deals predominantly in verticals, such as, BFSI, healthcare, telecom and transportation, but there many of them may expand to newer sectors in the coming quarters.