Rio Tinto in talks with TCS, Infosys for software services contract

Bangalore: Australian miner Rio Tinto Group is in talks to farm out additional software services contracts worth at least $250 million to Indian companies such as Tata Consultancy Services Ltd (TCS) and Infosys Ltd, seeking to cut costs as slowing economic growth in China, the world’s biggest metals consumer, puts pressure on its profitability.

add_main_imageTCS, India’s biggest software services provider, is one of the frontrunners to win the contract, ahead of its closest Indian rival Infosys, which already has an existing contract with Rio Tinto, said two persons familiar with the development. They declined to be named.

The contract is being negotiated at a time when Indian software service providers are struggling to boost revenue and some customers, including American Express Co. and General Motors Co., are cutting spending on outsourcing to India, seeking to rein in spending. Indian software services providers are targeting miners such as Rio Tinto that are trying to save costs amid declining metal prices. NextMAds

The Rio Tinto contract, which could be awarded to more than one company, is expected to be signed over the next few months. As part of the contract, the vendor will be in charge of services including infrastructure management, application development and maintenance.

“Rio Tinto has a very broad agenda. They’re in the process of driving a fairly significant change in their business and they’re going to utilize third-party vendors fairly tentatively on that journey,” said one of the persons cited above.

Rio Tinto, the world’s second largest miner, declined to comment on the details of the new contract.

“We are working with a number of Indian suppliers including Infosys,” Rio Tinto’s head of innovation John McGagh said in an email response. “We will continue to work with the providers of services. The overall objective is to remain competitive internationally.”

Spokespersons from the information technology (IT) firms, including TCS and Infosys, declined to comment on the development, citing client confidentiality.

“It could well turn out to be a billion-dollar deal, but a lot of proposals in the contract are still in the process of being drafted,” said the second person familiar with the development.sixthMAds

In February, Rio Tinto reported its first annual loss in over two decades after the company had to write off $14 billion off the value of its aluminium and coal businesses.

The miner has been working on restructuring its business to save a significant amount of costs as it operates in an environment of declining prices and sluggish demand that has affected mining companies across the world.

“Rio Tinto is currently in the process of exiting most of its non-core businesses and there’s tremendous pressure on the company to reduce costs,” said Manish Bahl, vice-president and country manager at Forrester Research Inc. “We expect to see this trend (of outsourcing more work to Indian IT firms) amongst other mining companies as well.”

Australia is a potentially lucrative market for Indian technology companies such as TCS, Infosys and Wipro Ltd, Bahl said.

Global IT spending is expected to rise by about 4% to at least $3.8 trillion in 2013, according to technology researcher Gartner Inc.

Infosys was not in the race any more to get a big share of the contract, according to the first person cited in the story. “Infosys was ahead fairly well-positioned for the contract…but they’re now involved in a much lesser degree,” said the person, without giving details.

In 2008, Infosys had won a $50 million contract from Rio Tinto for software development and maintenance.

Over the last five years, most Indian IT firms have signed deals with other large Australian firms. One of the largest such contracts, estimated to be worth at least $2 billion, was with Australia’s largest phone company Telstra Corp. Ltd.

The deal was originally signed in 2009 for five years with Infosys, International Business Machines Corp. and Hewlett Packard Co.-owned Electronic Data Systems Corp. Discussions on a renewal of the contract have started.