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News Leading IT Firms Pay Huge To Win Big Contracts   Email this page
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BANGALORE: Today, it has become a trend in the industry where all the software exporters are using their power for getting the information technology contracts, for instance they are either paying money upfront or buying assets, reports Varun Sood of The Economic Times.
Some industry executives and experts believe that this trend will gain grip in a year that has 3.3 lakh crore of contracts up for renewal. Country’s largest IT firms, like TCS and Wipro are also not untouched from this trend.

TK Kurien, Chief Executive Officer, Wipro, said "Any deal you do, there will be a certain level of structuring that goes in," after TCS paid about $200 million to buy the IT subsidiary of Canadian utility Atco as part of its single-largest outsourcing deal worth $1.2-billion, reports ET.

TCS merged its Japanese subsidiary with IT Frontier Corp (ITF), a unit of Mitsubishi by signing an agreement with Mitsubishi in April this year. In the deal TCS holds 51 percent in the new entity.

Sid Pai, who heads the Indian arm of outsourcing advisory TPI said, "It's very much a trend. As deal economics move inexorably toward usage based models to include the adoption of cloud technology, service providers will have to absorb an ever increasing portfolio of client hardware and software and human resource assets."This trend is not something new. ABN Amro had signed a contract of over $1 billion with Infosys and TCS in 200 that includes transfer of people and assets, and some blunt payment. Later in 2012 IBM won a billion-dollar contract from Mexico's biggest cement firm Cemex leaving Infosys and Wipro behind.

HCL Technologies had gained a $500 million contract from PepsiCo for infrastructure management services in May. To be in a safer side the homegrown IT majors structure the deals to stay competitive as the leading IT firms now bid against global outsourcing firms.

Suresh Senapaty, Chief Financial Officer at Wipro, said "It is not a standard kind of payment term. Buying the captive IT centre brings its own benefits."

"Depending upon how the customer is looking at, it varies. I won't say across the board but there are quite a few deals where you are able to protect your downside and able to structure the deal to take it forward by putting something upfront," he added.

Tom Reuner, an analyst at Ovum, a London based IT research firm said "Given the maturity of the outsourcing market, most providers apply a portfolio management approach to sourcing large deals based on their penetration of specific verticals,"

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