The Hindu Business Line : Deliver IT upfront

Making upfront payments to the prospective client — which is akin to sharing the cost benefits of outsourcing even before the engagement starts — is something that does impact the company’s quarterly earnings; yet it is important for winning very large deals, Nayyar, Tech Mahindra’s Vice-Chairman, Managing Director & CEO, told eWorld in an exclusive interaction.

History supports Nayyar’s claim. In 2007, the telecom solutions provider made an upfront payment of $118.6 million to BT, which eventually resulted in it bagging the largest outsourcing deal ($1 billion for five years) since the genesis of the Indian IT industry. This year too, the company paid a similar fee of $110 million for getting exclusive rights for 90 days to negotiate a contract with a client.

“The payments made this time around are for another ‘big’ deal of at-least five years that we hope to sign sometime next month,” confirms Nayyar. On being asked if this deal too will be from BT, as industry watchers claim, Nayyar preferred not to comment.

Simply put, if Tech Mahindra promises savings twice as much as the initial cost of the software project, it will straight away offer 37.5 per cent of the savings upfront even before the engagement starts. Exclusivity charges are a norm for bagging contracts of over $800 million — the art of which has been perfected by biggies such as IBM and Accenture. However, due to these payments, Tech Mahindra reported a $54.7 million net loss in the fourth quarter.

But the company has now bounced back by announcing three important deals in relatively virgin territories such as Botswana, New Zealand and Fiji.

Going forward, the company has under-penetrated geographies in Africa and West Asia on its radar, says Nayyar. Tech M has a backlog of orders worth $2 billion.

Separately, Tech Mahindra is sharpening focus on chasing deals with a tenure period of five years or more, as it gives the luxury of planning ramp-up initiatives.

Analysts feel this could be a survival mechanism to stay afloat in the global telecom industry that has been in a state of consolidation.

Nayyar himself refers to a telecom firm that had almost agreed to give Tech Mahindra a multi million-dollar transformational deal. “A few days before signing on the dotted line, the prospective client was acquired and Tech Mahindra lost the deal.”

“If we already had had some kind of existing relationship with the client, we would have had a better chance to bag the deal,” believes Nayyar.

adith@thehindu.co.in