Bangalore: India’s top software services companies are offering price discounts of as much as 25% as they battle global rivals to win contracts worth $85 billion (around 4.5 trillion today) that are set to be farmed out by companies such as Pfizer Inc. and Procter and Gamble Co. over the next year.

These contracts involve remote management of computer infrastructure, development and maintenance of business software applications, according to a study by outsourcing advisory firm Everest Group.

Tata Consultancy Services Ltd, Infosys Ltd, Wipro Ltd and Cognizant Technology Solutions Corp., which are under pressure to boost growth rates and increase their share of large multi-year outsourcing business, are pitted against multinational rivals such as Accenture Plc. and International Business Machines Corp., which have traditionally won such large contracts.

At least a dozen senior officials at the Indian firms chasing these contracts and US-based consultants such as HfS Research confirmed that an ongoing rate war was on to poach and retain lucrative outsourcing business by offering price discounts of as much as 25%.

“This has been more aggressive than usual, these past few months," said Phil Fersht, founder and chief executive of HfS Research that advises clients on renewing their outsourcing contracts. “There’s also a growing fear of losing customers as some providers struggle to find new customers."

Spokespeople for TCS, Infosys and Wipro declined to comment on the development citing the so-called silent period ahead of reporting their quarterly earnings.

Senior officials at some of these firms said price discounts are being offered to ensure a stronger sales pipeline.

“We are beginning to see some historic lows of $14 hourly billing rates, hope this season gets over soon," said the chief executive of one of the top 10 India-based software exporters. His company recently lost an outsourcing contract to manage the technology infrastructure of a US-based insurance firm to a rival who offered lower rates. The executives declined to be identified.

Bryan Britz, a research director at Gartner Inc., said Indian firms have offered focused strategies to poach some of the outsourcing customers.

“They (Indian firms) have developed approaches to offer transition from the incumbents, and our data shows that they are gaining," Britz said.

At Pfizer, vendors including Infosys, HCL Technologies Ltd and Cognizant are beginning to negotiate harder for a larger share of the contract under renewal, executives chasing the opportunity confirmed. Aetna Inc., the third biggest US health insurer, is negotiating an outsourcing contract with Cognizant and Infosys, according to an outsourcing consultant, who declined to be named.

A spokeswoman for P&G in India said relevant officials were unavailable to comment. Aetna and Pfizer did not immediately respond to an email query sent on Sunday.

To be sure, this is not the first time Indian software exporters are pushing aggressively to gain fresh business from customers served by multinational rivals such as IBM and Accenture. Last year, both HCL Technologies and Wipro outbid IBM to win a five-year outsourcing contract from AstraZeneca Plc. after the UK’s second biggest drugmaker started looking elsewhere to save more cost on IT outsourcing.

A senior official at a US-based bank that’s in the process of renewing its software application and computer infrastructure management contract said price discounts are not the only goodies being thrown by vendors to gain new business.

“Some providers are also offering to do a portion of maintenance for free for a specific period. But as customers we are not necessarily looking at cheap rates, we want them to be sustainable enough," he said, requesting anonymity because he was not authorized by his company to speak about the ongoing contract renewal.

Chirajeet Sengupta, research director at outsourcing advisory firm Everest Group, who published his research on the outsourcing contract renewal opportunity earlier this year, said Indian companies are winning such contracts on lower costs.

“While traditionally the incumbent almost always wins the deal, we are seeing situations in bulge bracket deals where Indian players have nudged out MNC incumbents at the time of renewal," Sengupta said.

This rate war could bring down profit margins of Indian technology firms by 1-3% over the next 12 months, at least two brokerage analysts tracking the sector said. They requested anonymity because their companies did not permit them to speak to the media.

Some experts, however, said the contract renewal season will not lower profit margins.

“In fact, we are seeing a few situations where large service providers are openly going to investors and saying that they want to go after profitability, and clean up their portfolio of loss-making deals/accounts," Sengupta said.

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