TCS, Infosys see signs of recovery on order flow

BANGALORE: India’s top two software exporters TCS and Infosys are seeing the first signs of an economic recovery as their top customers start discussing outsourcing contracts in order to further reduce their operational expenses. For instance, customers of Infosys, which signed over $100 million contract with Australian phone firm Telstra earlier this month, are now saying that the worst may be behind them.

“There is a lot more confidence among our clients; they feel that the worst is behind them. Especially in the US, many customers are saying that they were aggressive in reacting (to the recession)-they cut costs and renegotiated contracts,” S Gopalakrishnan, chief executive of Infosys told ET NOW. In a year when both Infosys and TCS have cautioned their investors on lower to negative growth in revenues, India’s $40-billion software exports industry is going through one of the toughest recessions in over two decades.

TCS, which counts Citigroup and GE among its top customers, is also seeing the first signs of recovery when it comes to the IT spending.

“We are seeing a recovery, but at a slow pace. The overall decline is slowly getting arrested. The recovery is showing but can’t predict the slope of this recovery,” N Chandrasekaran, chief operating officer, TCS told ET NOW.
Despite, financial problems and tightened IT budgets customers continue to work with offshore outsourcing companies in order to lower their operational costs anywhere between 20-30%.

As reported by ET earlier, tech biggies such as TCS, Infosys, Wipro and HCL are all set to get new outsourcing contracts worth $4 billion from top customers including British Telecom, Citi, GE and Bank of America this year. In a bid to cope with their tightened budgets, these companies plan to send their information technology works to offshore locations such as India.

Meanwhile, the ongoing slump is forcing many customers to evaluate different models of outsourcing, beyond traditional mode of structuring a contract based on number of hours and number of professionals on different projects.

“In the BSFI Segment itself I think that the downturn will drive some changes in terms of how clients engage with their partners. One major shift is shifting from capital expense to operational expense-it may be an interesting model to watch for in the future,” Mr Gopalakrishnan said. While top customers in the US are gradually beginning to discuss new outsourcing contracts, companies in Europe have been more active on the outsourcing front. According to research firm Gartner, almost 60 per cent of organisations in Western Europe will outsource more IT and business process functions in 2009, while renegotiation of existing contracts will rise to more than 60%.

“The focus on cost reduction is driving a high usage of outsourcing and global delivery in Europe in 2009 and 2010. However, under the current economic and technological conditions prices are going to decrease, creating a market full of opportunities and challenges for both end-users and external service providers,” said Claudio Da Rold, vice president and distinguished analyst at Gartner. Gartner anticipates prices of IT services outsourcing to decline by 5% to 20% through 2010.