Three summers ago, when International Business Machines (IBM), which runs the world’s biggest tech-services business, signed a deal to manage the computers, servers and other software of emerging Indian mobile phone firm Bharti Televentures, little did the Armonk, New York-headed company know of the market it was tapping into.
The decade-long contract, then worth $750 million (over Rs3,200 crore), has today expanded to $1.7 billion as the phone firm has grown its customers more than ten-fold to 35 million, India’s largest cellular business. IBM last month bagged a similarly-structured transaction, valued at up to $800 million, to handle the tech function at Idea Cellular. And, another one in the works with Hutchison Essar Ltd could be worth double that.
Today, India is so important to IBM that its chairman and chief executive, Sam Palmisano cajoles Sunil Mittal, chairman of Bharti Airtel, as the Indian company has been renamed, into addressing global schmooze events alongside him. “For him, Bharti is the most convincing case study he can present to the world,” Mittal recently said.
How has IBM bagged more than half such outsourced deals in a market that is home to growing global rivals TCS and Infosys Technologies? IBM insiders say the big advantage it enjoys over competition is the advisory capability it added after it bought consultant PricewaterhouseCooper’s technology services business. “That really was the silver bullet,” says a company veteran, who preferred not to be identified.
Jai Menon, director, technology and innvotion at Bharti, agrees. “When we partnered with IBM, nobody had an end-to-end capability to build a new system which would scale with our growth,” said Menon, who today sits on a global advisory board at IBM. Other chief information officers say even today, others such as Hewlett Packard or Accenture cannot match IBM’s breadth of offerings.
Nipun Mehrotra, director of technology services at IBM India, says the company’s ability to manage both small and large engagements spread over its multiple offices in India helps. “We are equally focussed on all our client engagements—whether it is the $29 million contract with DLF (a real estate firm) or an $800 million deal with Idea Cellular,” Mehrotra said.
IBM’s infrastructure and people costs are driven down as it shares the work of multiple Indian clients among a near-60,000 strong workforce, spread over 25 centres in Bangalore, Chennai, Gurgaon, Kolkata, Pune, Hyderabad and Mumbai, that services its global customers.
Big Blue, a nickname that stuck with IBM thanks to its large, blue-painted mainframe computers of the 1960s, sweetens deals by offering to take a share in the customer’s revenues in lieu of part-payments for the work it does. To date this sharing is on offer, say industry insiders, which other contractors struggle to match.
Besides costs, “while most Indian companies are still perceived to be ‘project-centric’, IBM has been able to position itself as a broad-based solution provider,” T.R. Madan Mohan, director of the tech practice at consultant Frost & Sullivan said. With committed investments across services and platforms, IBM has the financial and managerial depth to easily absorb tech staff of a client.
IBM’s successes are being heard at other company boards as some of India’s larger companies plan to adopt a similar model to concentrate on their core businesses leaving the management of technology to contractors such as IBM, Hewlett Packard, Accenture, Wipro, Tata Consultancy Services, Computer Sciences Corporation and other tech vendors jockeying for the deals. If telecom was the first wave of such engagements, banking could be the next, says Anand Sankaran, vice president of total outsourcing at Wipro. “In the last 12-18 months, we are seeing a trend where enterprieses are adopting a single-vendor approach for outsourcing their tech infrasructure, applications and asset management,” he said.
Leading Indian enterprises such as Reliance Industries, ONGC, Reserve Bank of India, State Bank of India, and Allahabad Bank are going to be the next big outsourcers, analysts and industry insiders say. It’s not a small market. The value of such deals over 10 years could range up to $500 million each for banking clients such as Allahabad Bank and RBI and up to to $200 million for Bajaj Auto and other manufacturing firms.
Another set of potential outsourcers are multinational companies such as Unilever’s Hindustan Lever, HSBC India and Standard Chartered Bank. “One of the deals being chased by IBM is the HLL contract, especially since its Indian operations are already supporting Unilever’s activities in South Asia,” a source who did not want to named, said.
Tech researcher IDC’s local unit has predicted that the demand for system integration services will grow to $8.7 billion, typically the market IBM and peers target.
IBM’s shadow looms large here too. Most of the new deals are not simple service contacts where tech vendors are paid fixed amounts “but come with escalating performance indicators and with a direct relation to the customer business,” says Wipro’s Sankaran.