Outsourcing Price War: Infosys, Wipro under pressure to drop prices to retain clients like Amex, Home Depot

Outsourcing Price War: Infosys, Wipro under pressure to drop prices to retain clients like Amex, Home Depot

Top software service exporters are under pressure to drop prices to retain contracts with marquee customers such as American Express and Home Depot that are up for renewal this year, according to executives and experts involved in the contract negotiations. 

Rates have fallen by double digits for some of the biggest customer accounts in the past six months, with companies such as InfosysBSE -0.04 % and WiproBSE 0.22 % sacrificing profit margins to gain market share and incremental revenue from these key accounts, they said. Retaining strategic outsourcing contracts - that generate at least $100 million annually - is crucial to top IT firms such as TCS, Infosys and Wipro for them to be to mine such accounts that could increase in scope over the years. 

"We're definitely feeling the heat in some of our key accounts - and there's no way we can afford to lose a top customer since gaining new logos to make up for the shortfall is not an option," said a Wipro executive, who requested anonymity.

An executive at another top IT firm, also declining to be identified, said as traditional businesses have become commoditised, no company could afford to charge a premium.

"Top customers are more aware now of the changing dynamics in the market and are taking the opportunity to negotiate multi-million dollar contracts at lower prices," this person said. 

Experts tracking the contract negotiations said prices could drop further over the next 3-4 quarters.

"It's become a dog-eat-dog business more than ever," said Phil Fersht, chief executive of outsourcing advisory firm HfS Research. "There is a clear downward pressure on all IT services pricing. We estimate this is a 3% price decrease per FTE (full time equivalent) per deal, on average, over the last 6 months."

TCS, Cognizant and Infosys declined to comment for the story. 

Infosys, TCSBSE 0.25 % and Wipro are increasingly automating commoditized businesses like infrastructure management to improve margins but are forced to pass on a majority of the benefits to key customers such as Bank of America and Citigroup.

"We are seeing big price movement, some of it betting on increased maturity of autonomics. TCS, Wipro and Infosys have all signaled their move away from (automation company) IPSoft and towards internally developed autonomics solutions.I assume that this will give them more pricing flexibility than they were getting with third-party software," said Bill Huber, a former IBM executive and managing director at outsourcing advisory firm Alsbridge.

For Infosys and Wipro, which have lagged average industry growth rates over the past three to four years, gaining market share at the cost of margins seems to be their best option in the near term to revive double-digit growth rates. 

Author: Anirban Sen

IT Stocks Rebound; HCL Tech, Tech Mahindra Lead

IT Stocks Rebound; HCL Tech, Tech Mahindra Lead

IT stocks were in the limelight today after remaining lacklustre in the past three sessions. The BSE IT index was up nearly 1 per cent index to be the biggest gainer among sectoral indices.

Among the IT stocks, HCL Tech, up 2.25 per cent, was the biggest gainer among Nifty stocks. Tech Mahindra was up 1.8 per cent while TCS gained 1.4 per cent.

IT stocks had underperformed the broader markets in the past few sessions on concerns over their Q4 earnings. TCS will kick off the Q4 earnings season with its results scheduled to come out on April 16 while Infosys will announce on April 24.

Many IT companies, including TCS, had warned about their Q4 results, citing cross-currency headwinds, weakness in specific verticals and client-specific issues.

Source: NDTV

Wipro doubles down on banking customers, rejigs the unit

Wipro doubles down on banking customers, rejigs the unit 

India's third largest software exporter Wipro BSE 0.69 % has undertaken another reshuffle in its key banking, financial services and insurance (BFSI) business, by splitting it between two leaders — one overseeing the US and other key markets and the other overseeing Europe and South Africa. 

In an internal announcement on Friday, Wipro said Angan Arun Guha — currently global head of Citigroup business unit at the company — will head North America, Australia, India, Middle East and emerging markets. Wipro has plucked out Shailendra Singh from the South Africa division to oversee the rest of the world. Citigroup is one the top customers for Wipro globally. 

Both Guha and Singh will report to Shaji Farooq — a former Infosys BSE -0.59 % veteran who joined Wipro in 2012 and currently heads the BFSI business. The new structure will be in place from April 1. 

Restructuring in the BFSI business comes as the Bengaluru-based firm is desperately trying to catch up with rivals such as TCS, Infosys and Cognizant in the banking outsourcing sector, after lagging for years. "Under this structure, while Angan Arun Guha, vice president will lead the vertical in North America, Australia, India, Middle East & Emerging Markets. 

Shailendra Singh, who heads Wipro's operations in South Africa, will lead the BFSI vertical in Europe & South Africa. Both Angan and Shailendra will report to Shaji Farooq, chief executive and global head - BFSI, Wipro," the company said in a statement. 

Wipro generates just over a quarter of its overall revenues from the BFSI business, which pales in comparison to rivals such as TCS, US-based Cognizant and even cross-town rival Infosys, which has lagged industry growth rates over the last 4 years and lost its prized bellwether tag. 

TCS BSE -0.40 % generates about 45% of its overall revenues from its banking business, while Infosys generates about 35% from such clients. The latest reshuffle also comes after previous banking and financial services head Rajan Kohli moved to a new role to head Wipro's digital business and after banking products head Balasubramanian Ganesh exited Wipro. 

Author: Anirban Sen