ABN deal is a big step for Indian outsourcing industry

The three Indian outsourcing deals that make up part of ABN AMRO Bank’s giant worldwide outsourcing project announced Thursday mark a significant step forward for the Indian outsourcing industry, executives and industry observers said.

The Dutch bank announced a series of outsourcing deals valued at €1.8 billion ($2.2 billion) in total, which will allow it to cut costs and reduce its employee base by about 1,500. IBM said it took the lion’s share of the contract, worth €1.5 billion. But three Indian companies also won significant deals: Infosys Technologies, Tata Consultancy Services (TCS), and Patni Computer Systems.

The deals mark the first time that Indian outsourcing companies have figured prominently in a large, global, multimillion dollar outsourcing deal spanning several years.

“What we are seeing now is the consolidation of the IT outsourcing business around a few global players and some large Indian players,” V. Balakrishnan, Infosys’ company secretary and senior vice president of finance, said Thursday.

The Indian companies were able to win parts of the ABN AMRO project because the bank chose to break the contract into smaller parts from multiple vendors, rather than award it to a single supplier, according to Partha Iyengar, vice president of research in India for research firm Gartner, of Stamford, Connecticut.

IBM will provide ABN AMRO with IT infrastructure services, while Infosys, in Bangalore, and Tata Consultancy Services (TCS), in Mumbai will provide application support and enhancements. Accenture, in Bermuda and Patni Computer Systems, in Mumbai, will be the preferred vendors for application development, along with IBM, Infosys, and TCS. These five vendors will develop new applications across all business units of the bank.

ABN AMRO has committed to provide Infosys with a minimum of $140 million in business for applications support and enhancements, according to Balakrishna. Infosys also plans to bid for the application development part of ABN AMRO’s business, which could take Infosys’ total revenue from the deal to about $250 million. “Our expectation is that we could get about $250 million from this account over the next five years,” he said.

The deal with ABN AMRO is expected to generate committed revenues for TCS of over €200 million over the five years, the company said. TCS, which has worked with ABN AMRO for several years, has also bagged an order recently for restructuring ABN AMRO’s private banking and wealth management system, said S. Padmanabhan, executive vice president and head of global human resource development at TCS. This order is not part of the contract announced by ABN AMRO on Thursday, he said.

The ABN AMRO deal is the first multinational engagement that allows TCS to fully utilize its global delivery model, Padmanabhan said. The work will initially be distributed across the company’s development centers in Uruguay, Hungary, and Brazil, with the bulk eventually transitioned to India, according to Padmanabhan. The multilingual capabilities of the centers in Europe and Latin America will be an advantage in implementing the work, he added.

Patni declined to put a figure on the value of its share of the deal. It already has some 150 engineers in Delhi doing work for ABN AMRO’s North American business as part of an earlier deal, said Deepak Khosla, the company’s vice president for marketing.

Other corporations are likely to start unbundling large contracts into smaller parts to be delivered by multiple vendors, according to Gartner’s Iyengar. This trend will help Indian outsourcing companies, who until now were not considered for very large deals because they were not considered to have the capability and experience, he said.

If the largest deal an Indian outsourcer had won so far was around $100 million, it would have been unlikely any customer would consider awarding them a billion dollar contract, Iyengar said.

“The trend we see going forward is that customers will break up their service requirements into parts which they will outsource to different vendors,” Balakrishnan said. Infosys is currently bidding on some more large, global, multiyear contracts, he added.

The multivendor approach to support and enhancements and application development will deliver real value to the bank by increasing cost efficiency and significantly improving agility, ABN AMRO said in a statement Thursday.