Home / Companies / News /  TCS, HCL among front-runners for Pepsi outsourcing contract

Bangalore: Tata Consultancy Services Ltd (TCS) and HCL Technologies Ltd are among the front-runners to win an outsourcing contract from PepsiCo Inc. valued at about $500 million (around 2,925 crore today), according to two people familiar with the development.

The contract, held by Hewlett-Packard Co. (HP), will be up for renewal later this year.

Pepsi had signed the contract with HP, the world’s largest computer firm, in 2006 for a total value of $100 million for managing its information technology (IT) and data centre operations, according to outsourcing advisory firm Everest Group. Pepsi also has outsourcing agreements with International Business Machines Corp., or IBM, which runs the finance and administration processes of the soft drink maker’s Indian arm.

According to the people cited above, the total contract value could go up to $1 billion and both Indian and multinational IT companies are fighting for the deal.

In 2013, at least $100 billion worth of contracts from clients such as Johnson & Johnson and Australia’s largest phone company Telstra Corp. Ltd will come up for renewal, according to Everest Group. Indian IT companies are likely to compete for a majority of these contracts.

PepsiCo, the world’s second largest soft drink maker and owner of brands such as Lays potato chips and Quaker oatmeal, is looking to save costs and improve operational efficiency in the face of slowing growth in developed markets such as North America and Europe.

“PepsiCo is in the process of driving a big change in strategy and that presents a lot of opportunities in the market," said one of the two people cited above. “HP, right now, is vulnerable and their clients are often less than satisfied...and it is likely that a large part of the contract, if not all, will go to other providers."

Officials at TCS, HCL, HP and other top Indian and multinational IT firms declined to comment on the contract. Pepsi declined comment.

The second person cited above, an executive at a top Indian IT firm that’s also chasing the contract, confirmed the details of the deal on condition of anonymity.

Contract renewals or “re-bids", as they are often called, provide an opportunity for large clients such as Pepsi to lower the price of the overall contract as the domestic and international IT services industry has become extremely competitive with several established players in the market such as TCS, IBM, Cognizant Technology Solutions Corp. and Accenture Plc.

At a time when India’s $108-billion IT sector is facing its toughest transition period, with slowing growth and large clients such as Bank of America and Procter and Gamble Co. cutting spending, a contract of this size and magnitude will be hotly contested by all top IT firms, say experts.

Much is at stake also for HP, which recently lost contracts to the likes of TCS, HCL and Infosys Ltd and is struggling to gain traction in a market that is dominated by bigger outsourcing rivals.

Indian IT companies have become stronger in the emerging infrastructure management services sector and are increasingly gaining business from companies like HP, said Sridhar Vedala, chief executive of outsourcing advisory firm QS Advisory.

“A lot of customers are switching from the so-called traditional model to the emerging infrastructure management space," said Vedala. “The scenario has changed completely. It is a much more even battle now."

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