The Hindu Business Line : Vendor consolidation: Indian cos see advantages

Indian vendors execute about three-fourth of their engagements from delivery centres located in country, which enables them to offer services at a lower cost.

Vishwanath Kulkarni

Bangalore, Nov. 28 Indian IT vendors say they are favourably placed compared to their global counterparts as clients start looking at vendor consolidation to cut costs.

Faced with cost pressures amidst worsening economic conditions, global clients are looking to reduce their vendor base and work with fewer vendors to derive maximum value from their IT spend.

Telstra, the Australian telecom firm, is currently in the process of consolidating its vendors and has recently asked its vendors such as IBM, EDS, Satyam and Infosys to re-tender. Telstra is expected to complete the exercise by end of December. It may be recalled that British Telecom did some vendor consolidation in the recent months.

Besides reducing the governance and management costs, vendor consolidation helps clients to address productivity and quality related issues as well as a single or fewer vendors would be handling their outsourced functions.

“Offshore players like us are well placed to offer the cost benefits and optimisation that clients would be looking for,” said Mr V. Balakrishnan, Chief Financial Officer, Infosys Technologies. “In times like this clients may not want to work with the global players,” he said.

Indian vendors execute about three-fourth of their engagements from delivery centres located in country, which enables them to offer services at a lower cost.

However, global players such as IBM and Accenture have also scaled up their offshore presence significantly in the past few years taking advantage of the cost-arbitrage and the vast talent pool. IBM has over 75,000 employees located in India while Accenture has over 38,000.

Mr Siddarth Pai, Managing Director of TPI India, said the MNCs are as well placed to take advantage of the cost advantage and India. However, Mr Balakrishnan believes that “it was not in the DNA of the global players to deliver cost benefits.”

“Vendor consolidation by clients could benefit us as it opens up new opportunities to bid,” said Mr Rostow Ravanan, Chief Financial Officer, MindTree Ltd, a Bangalore-based mid-sized IT services firm. However, Mr Ravanan said it is too early to call a trend (vendor consolidation).

Mr L. Ravichandran, Tech Mahindra’s Executive Vice-President and Chief Operating Officer, recently told Business Line that three of the company’s clients had agreed to vendor consolidation.

Consolidation depends on how many vendors a client has. Previously clients had multiple vendors based on the expertise and capabilities they brought in. Now, Indian vendors are capable of offering wider range of services as they have expanded their portfolio in recent years.

“As long as a client is having three or more vendors, there is a desire to consolidate,” said Mr Avinash Vashishta, CEO of Tholons Inc, an advisory firm. “The current market condition is the best time to consolidate as it is easier to move people between projects when things are low,” he added.