$80 Billion IT Sector Contracts Up For Rebid In 2020

Indian information technology (IT) companies are likely to have an edge over their global counterparts when some of the biggest outsourcing contracts come up for renewal in 2020. This, experts said, is because of the pricing power that Indian IT companies have.

They said among the Indian firms, Infosys, Tata Consultancy Services (TCS), and HCL Technologies are better placed to clinch some of the deals from the incumbent service providers. According to global IT outsourcing consultancy firm Ovum Research, around 1,680 deals worth over $80 billion will be renewed next year. This is about 6 percent lower than that in 2019, when deals worth close to $85 billion came up for renewal.

“Geographically, the US will see the maximum number of renewal of deals, with a 22 percent share, followed by the UK at 12 percent. France is likely to have 8 percent of the renewal pie, while Spain is another European nation with around 5 percent,” said Hansa Iyengar, senior analyst at London-based Ovum Research.

According to Peter Bendor-Samuel, founder and chief executive officer of outsourcing advisory firm Everest Group, the deal sizes in 2020 are expected to be bigger, as clients are moving from experimenting with digital projects to full-scale implementation.

“Among Indian vendors, Infosys, TCS, and HCL Technologies are better placed to see a higher growth rate in 2020,” said Bendor-Samuel.

The Ovum Research report states that $2.5 billion worth of IT contracts will go for rebid in India as more Indian enterprises increase their spend on new technology areas. This includes Bharti Airtel’s $1.5-billion application and infrastructure management contract.

Contracts from government agencies constitute the biggest share of the deals that will come up for rollover. This is followed by the services sector. Worldwide, an aggregate of $26.5 billion of such IT contracts are likely to be floated by various government agencies next year.

In terms of business verticals, banking and insurance will account for the maximum number of deals that will go for renewal. While banking contracts of around $5.6 billion are likely to be renewed, insurance deals worth $2.4 billion will be rolled over in 2020, Ovum Research said.

“Manufacturing (8 percent), telecommunication (7 percent), travel and transport (7 percent), and energy and utilities (5 percent) are other sectors that will witness the most deals coming for bidding,” said Iyengar.

Among large contracts, Zurich Insurance Group’s $2.9 billion worth IT contract leads the list. National Aeronautics and Space Administration’s (NASA’s) $2.5-billion contract is another major one that will come up for rebid next year. Currently, vendors like Leidos and HP Enterprise Services work under various NASA contracts.

For Indian IT services providers, pricing pressure is likely to reduce somewhat in the coming year. “After witnessing a consistent fall in prices due to intense competition among vendors, such pressure is likely to reduce a bit next year as most Indian IT firms are keen to protect their margins,” said Pareekh Jain of Pareekh Consulting.—Business Standard