Battle For $16 Billion As Indian IT Giants Gear Up for Global Contract Feast; Non-US Multinationals Eye India’s GCC Growth

India’s leading software export companies are gearing up for fierce competition, both domestically and internationally, as they vie for a significant portion of the anticipated $16 billion in global IT services contracts set for renewal over the next six months.

A slowdown in technology spending previously marked this; the upcoming renewals, each valued at over $250 million, are expected to spark intense competition among both local and multinational firms, according to industry experts.

Notable contracts up for renewal include a $1 billion deal with Japanese med-tech firm Olympus Corp, currently serviced by Wipro. Additionally, Vodafone Idea’s $750 million contract and AT&T’s $2 billion contract, both presently handled by IBM Corp, are also in the mix.

On the domestic front, Indian IT companies are poised to compete for a similar-sized contract from the US Department of Energy, currently held by Accenture. 

Other significant US federal contracts coming up for renewal include the Cyber Command’s $900 million contract held by Perspecta, NASA’s $500 million deal with Science Applications International Corp (SAIC Inc), and Axa Sun Life’s $843.5 million contract serviced by Capita, among others, as reported by IT research firm Omdia.

Industry analysts anticipate a robust effort from Indian IT firms to secure these contracts, many of which are presently managed by global multinationals. 

The current focus on cost optimization plays to the strengths of Indian IT firms, offering them a competitive edge in the bidding process, according to Pareekh Jain, CEO of EIIRTrend, an outsourcing consultancy.

India’s leading technology outsourcing firms have experienced a significant uptick in their market share since 2019, positioning themselves favourably to bid competitively for many upcoming contract renewals. Their success in securing substantial deals amid the challenging post-pandemic market has bolstered their confidence and capabilities.

Pareekh Jain notes that Indian IT vendors hold a strategic advantage in winning renewals over global mid-tier IT companies that have lagged in developing their GenAI and cloud capacities over the past five years.

Over the last four quarters, major Indian IT players, including Tata Consultancy Services (TCS), Infosys, Cognizant, and HCLTech, have inked numerous large and mega deals. 

Notable among them are agreements with Phoenix Group ($700 million), Nest Technologies ($1 billion), Danske Bank ($454 million), Liberty Global ($1.6 billion), CoreLogic ($1 billion), and Verizon ($2.1 billion), demonstrating their prowess in navigating the challenging market landscape.

Cloud And AI

In the domain of Cloud and AI, industry experts predict that clients will prioritize vendors capable of integrating new-age technologies into their solutions. 

Hansa Iyengar from Omdia suggests that businesses will be eager to invest in “new shiny objects” such as AI, automation, and cloud, potentially impacting margins in infrastructure deals, legacy transformations, and maintenance contracts.

Omdia’s data reveals that contracts such as IBM Corp’s 2019 deal with Spanish bank Banco Santander ($700 million) and Capgemini’s 2014 deal with French nuclear energy major Areva ($1.4 billion) are also approaching renewal. 

These multi-year agreements encompass cloud modernization, application development, and maintenance deals across various sectors like global telecommunications, manufacturing, banking and financial services, insurance, as well as energy and utility majors. 

According to Iyengar, most of these contracts are set to conclude within the next six months.

Intensified Competition in IT Renewals

Contract renewals in the IT sector are gearing up for heightened competition, driven by a growing emphasis on cost-conscious decision-making amid macroeconomic uncertainties. 

The macroeconomic turbulence has led technology clients to prioritize cost optimization, making the renewals and extensions process more fiercely contested. 

Mrinal Rai, principal analyst at ISG, highlighted the trend of clients opting for competitive bids to renew projects. He noted that incumbents, despite marginal increases in client satisfaction metrics, often face challenges in winning competitive renewal bids.

The prevailing focus on cost optimization continues to shape sourcing decisions, with a noticeable reduction in discretionary spending. ISG anticipates a continued evolution and experimentation by enterprises, especially with emerging AI technologies. 

Renewals are increasingly being secured at lower rates, accompanied by smaller scopes but extended contract durations. Everest Group’s CEO, Peter Bendor-Samuel, observed that many deals are being renewed for reduced annual amounts but with longer contract terms. 

The IT sector’s discourse on revenue leakage is seen as an attempt to elucidate this trend to investors without causing undue alarm, according to Bendor-Samuel.

Non-US Multinationals Eye India’s GCC Growth

India’s global capability centres (GCCs) are poised for the next phase of growth, with large non-American multinational companies taking a keen interest. 

Industry experts have highlighted that companies headquartered in Japan, Australia, the UK, and Europe are increasingly considering India as a premier destination for offshore centres. 

ANSR, a company facilitating the establishment and operation of GCCs for Fortune 500 enterprises, revealed that currently, at least 125 Fortune 500 enterprises have their GCCs in India, with the majority being US and Canadian companies. 

Lalit Ahuja, Founder and CEO of ANSR, predicts that the next growth phase will witness a surge in European, Australian, and Japanese multinational companies setting up bases in India, further contributing to the country’s prominence in the global GCC landscape.

The surge in the establishment of Global Capability Centres (GCCs) in India is primarily attributed to global companies reinventing themselves as technology-centric entities and engaging in extensive transformation initiatives. 

The substantial demand for technology talent, essential for these transformation programs, is a driving force, with India being the primary source to meet this scale.

In 2022, despite a challenging start, the latter half witnessed the opening of 21 new centres between July and September, following the launch of 65 centres earlier in the year. 

Notably, one-third of the new centres were initiated by non-American entities, including Valtech Mobility (Germany), Pioneer, Socionext (Japan), RHI Magnesita (Austria), Heimdal (Denmark), and Insud Pharma (Spain).

India is rapidly evolving as a global hub for hosting GCCs, attracting companies from diverse regions such as Europe (Germany, UK, France), Asia (Japan, South Korea, Singapore), Australia, and Canada. 

According to Palash Gupta, a thought leader in GCCs and startups and a Nasscom member, India’s appeal stems from its proven efficiency and quality in collaboration with North American and European majors.

A research report by CBRE, released in November, highlights the increasing interest of Asian companies in India’s GCC market. Although Asian corporations constituted only about 4% of total leasing by GCCs during 2022-H1 2023, the report anticipates a growing preference for India as Asian firms seek global expansion.

GCCs function as offshore development centers, facilitating the delivery of various solutions, including back office support, IT functions, location assessment, facility management, real estate, recruitment, and human resources support.

Prominent companies such as Bosch, SAP Labs (Germany), Samsung, LG (South Korea), Nokia (Finland), Ericsson (Sweden), Swiss Re Group, ABB (Switzerland), Airbus, Schneider Electric (France), and Philips (the Netherlands) have established a notable presence in India.

The market dynamics in India have shifted beyond cost arbitrage, now emphasizing scalability, talent, and capability, contributing to a thriving ecosystem. 

Swiss Re Global Business Solution Centres India, for instance, has recently established its Data, Digital & Tech center of excellence in Hyderabad, exemplifying India’s evolution into a talent hub. 

As of FY2023, the GCC landscape in India includes over 1,580 centers, with a market size of $46 billion and a workforce exceeding 1.66 million. Projections indicate growth to 1,900 centers and a market size of $60 billion by 2025, reinforcing India’s pivotal role in the global GCC scenario.

The Last Bit: As India’s leading software export companies gear up for fierce competition, both domestically and internationally, for a significant portion of the anticipated $16 billion in global IT services contracts set for renewal over the next six months, the competition is surely getting tough.

Simultaneously, India is witnessing a significant surge in the establishment of Global Capability Centres (GCCs), propelled by global companies undergoing transformative journeys into technology-centric entities. 

This trend is fueled by the massive demand for technology talent, a demand that India is uniquely positioned to fulfil; the challenging initial phase of 2022 gave way to a robust second half, marked by the opening of 21 new GCCs, with a notable presence from non-American companies.

India’s growing prominence as a global hub for hosting GCCs is attracting companies from diverse regions, including Europe, Asia, Australia, and Canada; the appeal lies in India’s proven efficiency and quality collaborations with North American and European majors. 

The increasing interest of Asian companies in India’s GCC market, as highlighted by a CBRE report, further accentuates the country’s attractiveness for global expansion.