Infosys Technologies, India’s second largest software services company, is targeting outsourcing deals of up to $500 million (Rs2,200 crore) in size, as European banks and manufacturers farm out tech work of larger scale and scope to providers in low-cost production centres such as India in an attempt to reduce expenses.
Infosys is currently executing just two outsourcing orders of more than $100 million. A company that has proven its capability in software applications and maintenance of computer systems, Infosys has so far shied away from infrastructure management, the bigger part of the outsourced software services business.
Infrastructure management involves managing desktop computers, servers, data centres and telecom systems of large companies. More than half the nearly $4.5-billion information technology outsourcing contracts due to be sealed before 31 March by European firms were in infrastructure management, according to outsourcing consultant Technology Partners International (TPI).
“We are bidding for infrastructure management piece of projects now, and maypartner with other companies for executing such deals,” S. Gopalakrishnan, president and chief operating officer (COO) of Infosys, told Mint. Several of these deals are from the banking and manufacturing industries in Europe.
In September 2005, Dutch financial powerhouse ABN Amro outsourced $400 million worth of application development work to TCS, Infosys and Patni Computers, while International Business Machines Corp. (IBM) walked away with $1.8-billion infrastructure management piece.
Infosys will not look at deals over half a billion dollar, Gopalakrishnan said. “We have the credibility and capability to execute $500-million deals, anything beyond that size may be tough to handle,” he said. Infosys, which has 488 clients, reported revenues of $2.15 billion in the year ended March 2006 and aims to top $3 billion in fiscal 2007. Analysts believe vendors such as Infosys may find it difficult to manage large outsourcing deals.
Sabyasachi S. Satyaprasad, senior director at neoIT, a Bangalore-based outsourcing consultancy, told Mint that there is still a “competency gap” at leading Indian software services companies in managing large deals that require infrastructure, application development and engineering design projects to be delivered simultaneously.
"Even for deals that are worth $100-200 million, Indian companies such as Infosys need to build competencies," Satyaprasad said.
Gopalakrishnan said his company will not take over the assets and people that traditionally come with infrastructure contracts. At least a handful of such deals have run into trouble in the past few years: a $5-billion contract JP Morgan Chase had with IBM, and two deals that Electronic Data Systems had with the Dow Chemicals and US Navy.
TPI chairman Dennis McGuire said the people and assets part of infrastructure management contracts have traditionally been a drag on margins. “Indian firms such as Infosys have adopted a smart strategy by not pursuing to ‘take over’ IT assets of their clients, required in large infrastructure management work,” McGuire told Mint.