The Hindu Business Line : Vendors see growing interest from first-time outsourcers

Another traction
First-timers made up some 30% of new customer wins in the past few months.
Customers seen to be still cautious with their spending.
Larger first-time clients not outsourcing.

Mr Krishnakumar Natarajan

Vishwanath Kulkarni
Shamik Paul

Bangalore, April 2 Even as uncertainty persists over clients’ budgets, Indian IT vendors have begun to see growing interest from first-time outsourcers looking to rein-in costs.

“Short-term uncertainty still exists as decision cycles are longer. However, we see increasing interest from the first-time outsourcers in the market,” said Mr Krishnakumar Natarajan, CEO and MD of MindTree Ltd.

Mr Natarajan said that some 30 per cent of new customer wins in the past few months were first-time outsourcers, but did not reveal more details. “Customers are still cautious with their spending and are making decisions on a quarterly or even monthly basis,” he said.

Admitting that such a trend is evident in the market place mainly with the small and medium (SME) clients, Mr Avinash Vashistha, chief executive of Tholons Inc, an advisory firm that helps clients formulate their outsourcing strategy, said “the larger first-time clients were not outsourcing”.

“The SMEs had not participated much in outsourcing and there’s business pressure on them to outsource,” Mr Vashistha said. “Among the larger clients, there are a few that have not touched outsourcing before. The ones that are there will take much more time to outsource,” he added.

‘Not much volume impact’

However, Mr Vashistha said the volume impact from the first-time SME clients will not be much and will not result in any significant improvement for the vendor’s business. Traditionally, Indian vendors have earned more than 95 per cent of revenues from the existing customers.

Besides MindTree, the Bangalore-based Sonata Software Ltd, also has seen growing interest from first-time outsourcers. “We have significant traction from the first-time outsourcers which is evident from customer wins in the past four to five months and from our pipeline,” said Mr B. Ramaswamy, Managing Director of Sonata Software.

Stating that Sonata has seen such a trend across verticals and from companies both in the US and Western Europe, Mr Ramaswamy said he would not be able to share more details because of the quiet period.

Mr Vashistha said most of the deals from SMEs are basic cost take-outs and the average size of such deals is probably in the $7-8 million range over a five-year period.

Margins for such deals would be good as the first-time outsourcers were unlikely to put pressure on pricing, Mr Vashistha said.