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Software: Where are the big deals? - Views on News from Equitymaster
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  • Sep 23, 2003

    Software: Where are the big deals?

    In these times, when Indian software companies are facing tough times due to slackened technology spending globally, they are ramping up on their capacity in anticipation of greater demand in the future. With hopes that technology spending will improve in their largest market (the US), these companies have added consistently to their employee strength and have spent considerably on giving that ‘extra’ edge to their selling and marketing infrastructure. Now, all they are waiting is for those big deals, those large-size contracts to come their way in form of outsourcing jobs.

    But where are those multi-million multi-year deals? Apart from a few ones, as mentioned in the table below, companies from the Indian software sector have nothing to boast about in terms of large size strategic outsourcing deals. This is more concerning when we consider the changes that the Indian software sector has witnessed since technology meltdown happened in 2000. The Indian software sector’s advantage on the cost arbitrage front has lost its sheen gradually as the sector has got commoditised. Due to this, the focus has moved from protecting margins towards growing on the volumes front. But the results still lack conviction.

    Large deals: Just a few of them!
    From To Size (US$ m) Duration (years)
    Lehman Brothers Wipro, TCS 70 Annual
    Lucent Hughes Software 30 3
    British Telecom Infosys, HCL Tech 160 5
    Telstra Infosys 50 5

    Most of the deals, as mentioned above, are for outsourcing of services like software development and maintenance, and also for the BPO segment. However, the nature of development and maintenance services off late have definitely shifted towards the higher end of the technology spectrum. Indian software companies now need to garner contracts that involve high-end jobs like package implementation and IT consulting, etc, as only this would help them to grow in the face of competition from global software majors like IBM, EDS and Accenture. And that would then involve even greater efforts on a number of aspects – employee retention, improved marketing and selling infrastructure, and a refined global delivery model.

    The rationale for Indian companies scaling up their operations is that, going forward, as more and more corporates look towards India for outsourcing their IT requirements, companies like Infosys and Wipro (that are scaling up strongly) would be in a much better position to cater to this demand. The ability to retain key personnel would also play a vital role in this regard. After all, as the Indian software sector moves on from cost arbitrage towards domain expertise, employees would play a definitive role. But, till the time there is a consistent flow of large-sized contracts for Indian software companies, investors need to employ a wait and watch policy.



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