BANGALORE: US companies like Best Buy, Visa and Conseco have started negotiating rate cuts with their Indian IT outsourcing partners. In what appears to be the first round of renegotiating their outsourcing contracts after a slower economic growth hit their businesses, US firms are seeking rate cuts anywhere in the range of 3-7 %, industry experts in the know of these renegotiations told ETon conditions of anonymity.
“New contracts are being doled out at lower rates, along with discounts offered for the existing projects,” an expert said. Also, new projects are being shelved for at least one year by these outsourcing customers as they look to reduce their operational costs. In some instances, customers are asking vendors to do more with same budget. “This is being done by redefining the scope of service-level agreements,” an industry expert said. Best Buy, Visa and Conseco did not respond to a query sent by ET last week.
In an interview with ET last week, Infosys chief executive S Gopalakrishnan had admitted that customers were asking for discounts while offering more work. Customers across the verticals of banking, finance, retail and manufacturing are expected to review and replan their IT budgets over the next two months. In some cases, outsourcing customers are also seeking to reduce the number of vendors they work with, and let fewer vendors do more work at lower rates.
Australian phone firm Telstra, for example, plans to retain only two of the four vendors it currently works with. It has invited Infosys, Satyam, IBM and EDS to bid for a restructured application development and maintenance contract, in order to bring down its IT costs. In such cases, while the retained vendors see increased volume of business, they have to take a cut in rates. “Telstra plans to work with fewer vendors, at lower rates,” said a senior official at a leading Indian tech firm.
While TCS works with Best Buy and Visa, Infosys signed a five year outsourcing agreement with the insurance firm Conseco in April this year. “Conseco has shelved most of its new IT projects planned this year, Infosys’ prospects could be hit depending upon its exposure to such projects,” an expert said. Wipro is also believed to have an outsourcing engagement with Best Buy, but a company official declined to comment . When contacted on Monday, spokespersons at the top Indian firms could not offer specific comments.
Large outsourcers seek to renegotiate contracts aiming significant cost savings . Last year, when BT Plc renegotiated its contract with Xansa, the company aimed to save around $123 million over next six years. However, BT’s restructured deal also witnessed more work for Xansa, estimated to be almost 80% of BT’s overall back-office projects.
Source: The Economic Times
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