Domestic Outsourcing
Outsourcing Deals 2011: No Stopping FY10-11 was a landmark year for the domestic outsourcing business, as number of large contracts soared. The government accounted for a predominant share as the sector started spending again...
PRAGYAN ACHARYA pragyana@cybermedia.co.in
n government and political circles, dealmaking often has a dubious connotation. It is not surprising considering what the Rajas and Kalmadis have been upto. Even as their kind of deals got the better part of our mindspace, and contracts signed by the Commonwealth Games organizing committee grabbed all the headlines, there was a series of less hyped dealmaking that was happening in the government circle almost throughout the year. They were the IT deals signed by various departments and agencies of the state governments and the central government. Even as analysts hailed India’s penchant for getting into IT services outsourcing quite early in the IT adoption curve in the country, the government clearly impressed with its aggressive buying of IT services—as if it was in a hurry to make up for all these years of neglect. Out of the 29 large deals signed in FY 11, as compiled by Dataquest (see page 4 and 5), as many as 15 (more than half) deals were government contracts. The deal sizes are more impressive too. Says Gaurav Gupta, managing partner, Everest Group, “The deal sizes are fairly substantial. If you look at the deal sizes, it is somewhere around $100-200 mn. From a global and regional perspective, these are fairly comparable to the largest deals that are signed (across the world).” That is not hard to explain. The government was quite late in investing in IT. It is only after the aggressive drive from the central government to implement NeGP (National eGovernance Plan) with clear measurable targets and incentives that many state governments and central government departments woke up. And since they were putting together the building blocks for a country as populous as India, the sizes were large even for basic infrastructure. As can be seen, the size of the deals are almost proportional to the size of the states in case of most state contracts such as state wide area 30 | May 15, 2011
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DATAQUEST | A CyberMedia Publication
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Awards
Partners
Domestic Outsourcing IT Services Providers in Domestic Outsourcing
Buyers Across Verticals in the Domestic Market 10%
7%
Aviation
Spanco
10%
IBM
17%
21%
HCL
17% TCS
14%
17%
Banking
Others
Others
31%
Wipro
56%
Government
Share by number of deals in the list
networks (SWAN), Restructured Accelerated Power Development and Reform Program (R-APDRP) and even State Data Centers (SDC). Of course, FY11 was not the beginning. The government has been spending for the last 3 years. The contracts for some of the basic infrastructure—most notably quite a few SWANs—got finalized more than 3 years back. But FY11 was the year in which the government became the predominant spender on IT and that had its impact on the IT services market too. Also, unlike the immediate preceeding years, FY09 and FY10, enterprises again started spending on IT. Despite that, the government still dominated the IT outsourcing market.
Big Projects Take the Cake For the government, by and large, it was still the basic infrastructure deals that dominated. If SWAN contracts dominated in earlier years, last two years have seen State Data Centers and power reforms projects R-APDRP accounting for most of the deals in the government segment. The R-APDRP has a total outlay of `51,577 crore. According to estimates by Dataquest last year, the total contract value for IT implementation agencies—a specified requirement 32 | May 15, 2011
Balakrishna Adiga, director, strategic outsourcing, global technology services, IBM, India/South Asia
“The reason for not taking government deals is that we do not know where they are heading. The buyer also has to devote a lot of time to the project, they should be clear about their requirements” visit www.dqindia.com
in the project—would be anywhere between `6,000-7,500 crore. While FY 10 had seen a few deals such as those by the state electricity boards of Madhya Pradesh, West Bengal, Karnataka, Rajasthan and Gujarat, last year saw Punjab, Uttarakhand and Himachal going for these contracts, totalling more than `500 crore. April this year saw Jharkhand State Electricity Board (JSEB) joining the bandwagon by placing an order worth Rs. 138 crores on HCL Infosystems. Similarly, while FY 10 had seen SDC deals being awarded by Maharashtra, Orissa, West Bengal, Gujarat, and Rajasthan, last year saw UP, Puducherry and Karnataka placing their orders—all bagged incidentally by TCS. That does not mean that it was only the clearly mandated projects like SWAN, APDRP, and SDC that dominated the deal landscape. There were a few interesting, innovative projects too that were awarded. Wipro, after winning the contract to FINnet—a project that is expected to significantly enhance the capabilities of the Ministry of Finance’s Financial Intelligence Unit to collect financial information from various reporting entities, analyze those and disseminate actionable information to various law enforcement and intelligence agencies in March last year—won another interesting project from the Home Ministry. The Crime and Criminal Tracking Network & Systems (CCTNS), a Mission Mode Project under the National e-Governance Plan (NeGP) was bagged by Wipro in June. The project aims to digitally integrate 14,000 police stations and 6,000 headquarters and thus help in more effective tracking of crime and criminals. The defence forces joined the party too. Notable contracts were an Indian Air Force contract to HCL for building a W-CDMA-based digital radio network and a SAP implementation contract Wipro won from the Indian Navy. Some other | DATAQUEST | A CyberMedia Publication
interesting standalone projects (not part of any mandated government program) include a Central Vigilance Commission (CVC) contract to TCS for automating the workflow and a Census of India contract to HCL for digitizing data.
Enterprises Wake Up After the slowdown of FY09, the recovery in the market was led by the government and SMBs, while for almost two years the large enterprises were extremely cautious in taking new projects. So, any contracts that came from large eneterprises were pre-decided essential projects or basic infrastructure to support market expansion. There were few new, transformational projects that were undertaken with a long-term advantage in mind in FY09 and FY10. That revived last year. Suzlon awarded a `532 crore project to IBM that was an integrated IT deal with business transformational obejectives. IBM also bagged a 10 year, transformational deal with Jet Airways worth $62 mn to support its entire IT. IBM rounded up the year by winning a project from Cosmos Bank. It is interesting that almost all the large enterprise deals including the strategic outsourcing deals were grabbed by just 2 companies. If IBM actually started this wave long back and continues to maintain the lead there, Wipro is catching up fast. Last year, it almost swept the regional rural banks (RRB) space which started implementing core banking. In the wake of the clear and strict mandate to meet financial inclusion targets, PSU banks became more aggressive on using their sponsored RRBs to meet those targets. Central Bank of India, Canara Bank, and UCO Bank chose Wipro as the partner to implement core banking in their RRBs. But what made news headlines is the Lavasa city total outsourcing deal that it bagged. Wipro also took the DATAQUEST | A CyberMedia Publication
Gaurav Gupta, managing partner, Everest Group
Rothin Bhattacharyya, executive VP, HCL Infosystems
“From a global and regional perspective, these (deal sizes) are fairly comparable to the largest deals that are signed (across the world)”
“Over the years, the challenge has been to gradually create a favorable market and convince the market about the cost advantages in outsourcing”
fight with IBM to the latter’s territory bagging a `223 crore deal from Vodafone. Vodafone is not just in IBM’s most successful vertical, telecom; it is an IBM customer too. For Wipro, it is a conscious strategy. “We started as a domestic player and we never ignored our focus. In order to be a global market player, one cannot ignore their own country,” says Anurag Mehrotra, vice president, sales and marketing, Wipro. Wipro makes 9-10% of its IT services revenues from India and the Middle East. Beyond these 2 companies, not too many succeeded in bagging large enterprise contracts for big outsourcing deals.
contracts have gone to the Indian companies. Those not familiar with the Indian scenario would conclude that, like many countries, India too may be taking protectionist measures barring or making it difficult for foreign companies to take part in government tenders. Clearly, that is not the case. The Indian government is not at all protectionist. However, where foreign companies—most notably IBM (others are not successful in private sector either)—fail to compete is the price point. Also, in the basic infrastructure deals, IBM does not see too much value, even though deal sizes are large. The official reason given by IBM, however, is slightly different, though. “The reason for not taking government deals is that we do not know where they are heading. The buyer also has to devote a lot of time to the project, they should be clear
The Clear Divide If one even takes a cursory look at the deal dossier (see page 4 and 5), one thing is evident: All government visit www.dqindia.com
May 15, 2011 | 33
Domestic Outsourcing DOMESTIC OUTSOURCING DEALS SIGNED IN FY10-11 Duration
BUYER
SUPPLIER
Government
Indian Police (CCTNS)
Wipro
2,000
June, 2010
Banking
Central Bank of India
Wipro
1,153
Sept, 2010
5 years
Government
MP Government
HCL
1,000
Aug, 2010
6.5 years
Aviation and Logistics
Air India
SITA
843
Apr, 2010
10 years
Banking
Uco Bank
Wipro
670
Aug, 2010
7 years
Power and Energy
Suzlon
IBM
532
Oct, 2010
5 years
Government
Indian Air force
HCL
300
March, 2011
Government
PSEB (R-APDRP)
Spanco
284
Apr, 2010
5 years
Aviation and Logistics
Jet Airways
IBM
275
Sept, 2010
10 years
Public sector undertaking
BSNL
HCL
250
Jan, 2011
3 to 5 years
Telecom
Vodafone Essar
Wipro
223
Dec, 2010
3 years
Government
JSEB (R-APDRP)
HCL
138
Apr, 2011
Government
Uttarakhand Power Corp
Infinite
125
Apr, 2010
Government
HPSEB (R-APDRP)
HCL
100
Sept, 2010
Government
Min of Finance
Wipro
100
March, 2010
3 years
Transportation and logistics
Transport Dept of Punjab
Spanco
61
March, 2011
5 years
Government
Census of India
HCL
40
July, 2010
1 year
Government
UIDAI
MindTree
20
Apr, 2010
Government
Maharashtra Govt
TCS
March, 2010
Government
Pudducherry Govt (SDC)
TCS
March, 2011
Banking
Canara Bank
Wipro
March, 2011
Government
Central Vigilance Commission
TCS
Aug, 2010
Government
Karnataka Govt (SDC)
TCS
Sept, 2010
Government
UP Govt. (SDC)
TCS
Dec, 2010
Real estate
Lavasa city
Wipro and Cisco
July, 2010
Banking
Cosmos Bank
IBM
March, 2011
Automobile
TVS
Wipro
June, 2010
Government
Indian Navy
Wipro
July, 2010
Banking
Bank of Baroda
HP
Feb, 2011
about their requirements. Outsourcing requires deep thinking from both the buyer’s and vendor’s side, so that the value is delivered,” says Balakrishna Adiga, director, strategic outsourcing, global technology services, IBM, India/South Asia. On the other hand, the large offshore players who were looking at 34 | May 15, 2011
DEAL SIZE in `crore
Date
VERTICAL
entering the home market and have taken the first steps—succeeding in some cases—are also looking at the government route to have a kickstart. Both Infosys and Mindtree have seen some of their first successes in government sector: Infosys in R-APDRP and Mindtree in UIDAI project. Competitors say they lack focus visit www.dqindia.com
10 years
5 years
10 years
on the domestic market. “There are many competitors in the domestic outsourcing space but we do not know if they have the same focus. Many companies see it as a balancing act and it is not a key strategy for them. If it is not a key strategy for them, that is where you tend to lose your focus,” says Adiga of IBM. | DATAQUEST | A CyberMedia Publication
Description Nationwide network infrastructure spanning across all states and UTs Core banking solution Food coupon based PDS Upgradation and integration of passenger reservation system Implementation of core banking solution across 803 branches of 5 sponsored RRBs Business consulting services, application development and maintainance Supply, install and commission W-CDMA based portable wireless network Implementation of IT infrastructure Employee transition, data center operations, central helpdesk support, server and storage operations and internet security services Management of billing system and upgradation of existing infrastructure Network design, implementation and integration with existing IT application Providing data and IT applications for energy accounting/auditing and IT-based consumer service centres IT modernization Data and IT applications for energy accounting and editing Collection, analysis and dissemination of information Automation of state transport department and introduction of smart card based driving licences Digitization of data generated by the Census of India Application development and maintainance Online citizen services Setting up and managing state data center Core banking solution for regional rural bank (RRB) initiative Automated workflow solution Setting up and managing state data center Establishing and manging state data centers Creating an e-city Core banking solution Leveraging IT across all business and functional units Central online financial information system IT modernization initiative
Happening Future While a lot of contracts were finalized in the JFM quarter, April has seen some action too. Department of Transportation in Punjab has finalized a contract with Spanco while Jharkhand has signed its R-APDRP contract with HCL. Indian Railways and the State Bank of India (SBI) DATAQUEST | A CyberMedia Publication
have recently announced their willingness to float tenders for procuring the appropriate application software, hardware systems and services in place. The two big government entities are planning to spend `4,120 crore each for speeding up their process in rendering services to the masses. visit www.dqindia.com
“Over the years, the challenge has been to gradually create a favorable market and convince the market about the cost advantages in outsourcing,” says Rothin Bhattacharyya, executive vice president, HCL Infosystems. The Indian buyers are surely buying the logic. n May 15, 2011 | 35