Indian IT companies bid against MNC rivals for $1 bn BP deals

BANGALORE: India’s offshore outsourcing firms, including TCS, Infosys, Wipro and Mahindra Satyam, have locked horns with MNC rivals IBM and Accenture for up to $1 billion worth of outsourcing contracts to be awarded in August by British Petroleum (BP).

BP, which currently outsources a majority of its application development, system integration and infrastructure management projects to almost 30 suppliers including IBM, Accenture, Mahindra Satyam and Infosys, wants to bring down its IT costs by up to 30% by working with fewer vendors handling more work, at lower rates.

“Every BP business unit at BP was running its IT operations separately, with a different set of suppliers. This led to complexity and a higher cost of operations. With this consolidation, BP now wants to work with not more than six vendors globally,” said a UK-based expert familiar with BP’s sourcing strategy. He requested anonymity as he is not authorised to comment about the contracts.

When contacted by ET last week, a BP spokesman confirmed that the supplier review is nearing its end. “Yes, we have been reviewing our strategic IT providers, and are getting close to the end of that process, but I can’t confirm numbers of the current or possible future providers,” said spokesman Robert Wine.

Sridhar Vedala, MD of sourcing advisory firm Quantum Step, says customers are now breaking down their requirements into infrastructure management, application development and maintenance, and are selecting vendors according to their competencies. “A few years ago, ABN Amro undertook a similar exercise,” he added.

While customers in the US, the top market for Indian companies, are scaling back on outsourcing, British firms will spend around $15.6 billion this year, according to research firm Ovum-Datamonitor.

While Mahindra Satyam counts BP as one of its $40-50 million customers, Accenture and IBM currently have a lion’s share of the outsourcing pie, estimated to be anywhere between $300 million and $400 million.
“This consolidation offers opportunities for vendors such as TCS and Wipro to grow their revenues from BP,” said a senior executive at one of the tech firms bidding for the BP contract. He requested anonymity because the contract has not yet been announced.

Some experts believe that customers are increasingly seeking to give away their application development and maintenance projects to Indian offshore firms and are letting IBM remain the master integrator. “When Telstra recently announced a new set of vendors, IBM was chosen the master supplier with Infosys and EDS working in tandem with Big Blue,” said an outsourcing expert based in Australia.

In large outsourcing contracts, the infrastructure management piece, or services involving management of computer systems, servers and other enterprise systems, is bigger in terms of value. For instance, when Australian phone firm Telstra awarded $1.2 billion worth of contract last month, IBM walked away with the $750-million infrastructure piece, while Infosys and EDS shared the $450-million application pie.