IT majors vie for $250-mn Nissan contract

Japan’s third-biggest automaker Nissan has invited outsourcing companies including TCS, Wipro, IBM and Mahindra Satyam to bid for an application development and maintenance deal, potentially worth around $250 million.

Nissan, which currently works with Mahindra Satyam, among several other vendors, is among the other Japanese companies such as Sony and Toyota, who are seeking to reduce their operational costs by outsourcing IT and back-office projects to India. They are expected to spend around $2 billion on outsourcing with India-based vendors this year, according to experts tracking these contracts.

“Nissan has asked the vendors to bid for this contract. However, a significant local presence or partnership with another Japanese IT firm are among the key parameters the bidder has to follow,” said a senior executive at one of the tech firms exploring this opportunity. He requested anonymity because his company is not authorised to comment on any potential contract. When contacted by ET, officials at TCS, Wipro and Mahindra Satyam did not offer any specific comments. A Nissan spokesperson also did not respond to an email query sent by ET last week.

Japanese firms outsource IT contracts worth over $8 billion to countries, such as China, India, Korea and Vietnam every year, according to an expert, who requested anonymity. India’s share was around $1.5 billion last year, as Japanese customers continued to prefer neighbouring destinations, such as China, which accounted for almost $5 billion of work, and Korea, which exported software projects worth around $1 billion to the country.

Despite being a lucrative market for IT outsourcing, Indian companies have not really been able to make any significant inroads, especially since the Japanese customers still prefer to work more with local companies, apart from maintaining their in-house IT teams.

Fujitsu, IBM Japan, NEC and Nihon Unisys are among the established vendors in the country.

“Customers, such as Sony and Shinsei Bank, would start with smaller, even less than $1 million contracts, something Indian companies were not really keen to pursue until now,” said a Japan-based business head for an Indian IT company. He requested anonymity because he is not authorised to speak with media. “Customers, such as Toyota, still believe in maintaining large in-house IT departments,” he added.

Experts, such as Kazumasa Kuboki, director of Japan External Trade Organisation (Jetro), said that Indian companies need to be seen as local companies in order to gain more outsourcing business. “IBM Japan, for instance, is viewed as any other Japanese company by the customers,” he said. “Indian companies need to gain more confidence of Japanese customers by doing smaller, trial business,” he added.

This year could see new Japanese customers emerge for Indian software companies. Tokyo-based Sony announced recently that the company will make savings of over $2 billion by reducing operational costs at its electronics unit, apart from undertaking several restructuring measures, including outsourcing. Sony projected a full-year operating loss of around $2.9 billion for 2009, the company’s first loss in 14 years.

“Dearth of IT engineers and economic recession are among reasons for Japanese companies to increase their outsourcing this year,” Mr Kuboki said.

Japan, which spends almost 2.6% of its GDP on buying technology services and products every year, slipped to third
place after China became the world’s second biggest market for IT with around $143 billion spend last year, higher than $123 billion Japan spent, according to Forrester Research.