2018 trends set to boost growth at info tech com­pa­nies next fis­cal

Tech firms, in­clud­ing TCS and Wipro, gen­er­ated more rev­enue than ever be­fore from stand­alone out­sourc­ing deals signed in 2018

Mint Asia ST - - News - B Y VA RUN S OOD

The twin trends of out­sourc­ing larger tech­nol­ogy con­tracts and For­tune 1000 com­pa­nies award­ing work that was ear­lier done in­ter­nally to its ven­dors have led an­a­lysts and in­for­ma­tion tech­nol­ogy ex­ec­u­tives to sug­gest that the sec­tor could grow faster in the year start­ing 1 April.

Th­ese trends are the third pos­i­tive de­vel­op­ment for In­dia’s $167 bil­lion in­for­ma­tion tech­nol­ogy (IT) out­sourc­ing sec­tor, af­ter the first six months of the cur­rent fis­cal saw IT firms adding more em­ploy­ees and rais­ing salaries of some of them by as much as 40%.

“Dig­i­tal spend is in­dus­tri­al­iz­ing a lit­tle bit, mov­ing from pi­lots and POC (proof of con­cepts) to big spends. That should look well over­all for the in­dus­try, so I am quite op­ti­mistic,” Nass­com chair­man Rishad Premji said in an in­ter­ac­tion with Mint last month. “The other in­ter­est­ing and ex­cit­ing thing is, again at broad ba­sis, the re­turn of larger deals.”

IT’S RE­VIVAL STORY CON­TIN­UES

Larger tech con­tracts and slower growth in in­sourc­ing may fuel faster growth of the IT sec­tor Tech con­tracts are get­ting big­ger as com­pa­nies bun­dle dig­i­tal and tra­di­tional work

Clients are again out­sourc­ing work to IT firms af­ter fac­ing dif­fi­cul­ties in im­ple­ment­ing new tech­nolo­gies without ex­ter­nal help

The abil­ity of IT ser­vices com­pa­nies to of­fer so­lu­tions through mo­bil­ity and data crunch­ing plat­forms that al­lows their clients, from Cit­i­group to Wal­mart, to do their busi­ness more ef­fi­ciently saw the tech­nol­ogy ven­dors gen­er­at­ing more rev­enue from stand-alone deals signed in 2018 than ever be­fore.

This de­vel­op­ment is one rea­son for im­proved growth at some of the largest com­pa­nies, in­clud­ing Tata Con­sul­tancy Ser­vices Ltd (TCS).

The largest IT ser­vices com­pa­nies, in­clud­ing TCS, Cog­nizant Tech­nol­ogy So­lu­tions Corp., In­fosys Ltd and Wipro Ltd, shared this op­ti­mism when they briefed an­a­lysts at an event or­ga­nized by out­sourc­ing re­search firm HFS Re­search in New York on 12 and 13 De­cem­ber.

“[M]an­age­ment shared that 50% of the value of new deals are com­ing from 25% of the new sign­ings, which im­plies that con­tracts are longer in du­ra­tion with in­creas­ing com­plex­ity,” Keith Bach­man, an an­a­lyst with BMO Cap­i­tal Mar­kets, wrote in a 17 De­cem­ber note.

Bach­man made the ob­ser­va­tion af­ter speak­ing with the man­age­ment of Gen­pact, the New York-based busi­ness process and tech­nol­ogy man­age­ment firm, at the HFS event.

For close to a decade, out­sourc­ing deals shrank as tech work be­came com­modi­tized. An added chal­lenge for IT firms was the rise of in-sourc­ing, which saw sev­eral large clients set­ting up their own tech­nol­ogy units or cap­tives to do the tech work.

How­ever, 2018 saw this change, ac­cord­ing to three ex­ec­u­tives from TCS, Cog­nizant and Wipro. “Sev­eral ser­vice providers dis­cussed clients that have taken work in-house out of frus­tra­tion with ser­vice providers, but have ex­pe­ri­enced dif­fi­culty in im­ple­ment­ing new tech­nolo­gies without ex­ter­nal help. As a re­sult, clients are re­turn­ing to ser­vice providers with more re­al­is­tic ex­pec­ta­tions,” Bach­man wrote in the note.

“I do not see a huge rush to cap­tives—the big is­sue is tal­ent short­ages in higher value ar­eas, such as dig­i­tal, AI (ar­ti­fi­cial in­tel­li­gence), an­a­lyt­ics, ma­chine learn­ing, etc. No one wants to hire those in­ter­nally—the tal­ent is too ex­pen­sive and hard to re­tain,” said Phil Fer­sht, chief ex­ec­u­tive of­fi­cer of HFS Re­search. “Hence, we are wit­ness­ing a resur­gence in ser­vices based on higher-value ser­vices and deeper, more con­sul­ta­tive part­ner­ing.”

“In a nut­shell what we are wit­ness­ing is the shift from ‘out­sourc­ing’ to ‘real value part­ner­ing’ and the win­ning providers are those who can con­vert to the lat­ter with smart tal­ent and op­er­at­ing model in­vest­ments,” said Fer­sht.

TCS, In­fosys and Wipro de­clined to com­ment as all three are in a quiet pe­riod ahead of declar­ing their re­sults.

Since De­cem­ber last year, Mum­bai-based TCS and Bengaluru-based Wipro have won four multi-year mega deals, which will to­gether gen­er­ate over $7.2 bil­lion in rev­enue.

“A lot of deals, be­yond the four mega deals, have seen in­te­grated tra­di­tional of­fer­ings like in­fra­struc­ture main­te­nance and BPO, along with de­ploy­ment of data an­a­lyt­ics plat­forms and some level of au­to­ma­tion. This means that a re­sult­ing con­tract is of larger value than a pure-play tra­di­tional work,” an ex­ec­u­tive at TCS said on the con­di­tion of anonymity.

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.