With over $200-billion worth of IT deals up for renewal in 2017 and 2018, digital and automation will slice off a third of the contract, and nearly half the incumbent IT providers will lose part of the work, highlighting the challenge faced by Indian IT firms as they chase growth.
As deals from Citigroup to BNP ParibasBSE -1.56 % go up for rebid, companies from InfosysBSE -0.07 % to IBM have said though customers expect cuts on their current contracts, they are not immediately spending the savings on transformation investments.
IT consultancy ISG said the situation has become competitive as more players chase a decreasing value of deals.
"We expect that the renewals market will see intensified competition, largely between incumbents that are driving self-disruption through innovation and automation to bring more client value even before the contracts terminate and niche providers who focus on business problem solving," Dinesh Goel, India head at ISG, told ET.
Goel said over 5,500 deals were expiring across geographies and verticals in the next two years, and these renewals would affect the course of the industry for the next three to five years.About 48 per cent of these contracts are in EMEA, 41 per cent are in the Americas and 11 per cent are in Asia-Pacific.
There is also a bright side for Indian IT players. Of the 10 top deals coming up for renewal in the next two years, Indian IT companies have a stranglehold on only one, giving them a chance to lure away business from rivals.
Deals from BNP Paribas, National Australia Bank, Allianz and airline software company Sabre are up for rebid and currently being serviced by multinational companies.
Only a Citigroup BPO deal is mainly serviced by an Indian company . Tata Consultancy ServicesBSE 0.03 % had bought Tata Consultancy Services' business process outsourcing unit in 2009.
The Indian IT sector has been reeling from the impact of Britain's vote to exit the United Kingdom.
Cognizant has cut its guidance three times this year, Infosys has done so twice and Tata Consultancy Services posted its worst second-quarter growth in over a decade.
The National Association of Software and Services Companies (Nasscom) has also cut its growth target for the year to 8-10 per cent from 10-12 per cent earlier.
ISG said the situation was complicated for incumbents in the deals, who would have to chase a smaller contract size and also stood a significant chance of losing out.
"Based on our survey , on deals that are reopened for competitive bidding, we noted that 47 per cent of the time, incumbent providers may lose entire scope of the work, whereas 32 per cent of the time, the incumbent would lose some noticeable scope of the deal," Goel said.
For larger deals
He added 65 per cent of all deals were reopened for competitive bidding and that most are lost because of a better offering or price advantage. He said 20-30 per cent of the deal value would be lost to digital technologies such as cloud and automation.
And now, even smaller companies such as MindtreeBSE -0.73 % and Hexaware are bidding for parts of larger deals, Goel explained.
"They have realised they have to bid for these larger contracts because when you are at half-a-million dollars in revenue, $1 million and $5-million deals no longer move the needle. And now, clients are open to splitting the contracts if you have a good offering," Goel said.