Monday, January 16, 2006

Off-shoring / Outsourcing: Ending the Reign of the Big Six

It is estimated that in the next two years, $100-billion worth off-shoring / outsourcing contracts will be up for grabs. News that might just end the reign of the Big Six playersi.e. Electronic Data Systems (EDS), Hewlett-Packard, Accenture, Affiliated Computer Services, Computer Sciences Corp., IBM, by loosening their grip on the market, as they face stiff competition from other off-shore / outsourcing companies.

Incumbent service providers, with 72% contract value to be renewed over the next two years, the big six of off-shoring / outsourcing could find their dominance of a lucrative market challenged, according to TPI, an outsourcing advisory firm.

With one in five outsourcing contracts up for renewal in 2006 and 2007 i.e. 325-contracts, IBM and EDS alone have a combined total of $50-billion worth of contracts that are coming up for renewal. Although, as a rule, incumbent service providers get their contracts renewed, with increasing competition it is no longer possible for service provider to rest easy on their laurels. They have to continuously prove themselves over and over again, cutting costs and improving service quality, if they wish to retain an edge in the market. Managing Director, TPI says: “Client retention will increasingly depend on an incumbent's ability to offer a competitive proposition. This could mean significant changes in price and scope from the original contract.” And, half of the new contracts coming up include some sort of off-shore element.

As the off-shoring / outsourcing trend moves to smaller deals, the dominance of the big players is going to be challenged, a trend that will prove extremely beneficial to Indian off-shoring / outsourcing companies.

There were 293-contracts signed in 2005, nearly three-quarters of which were small to medium contracts. While, Indian outsourcing companies rarely win deals that are valued over $200-million, in 2005 they were invited to bid for 30% of contracts below the $200-million level, and ended up winning 70% of them.

Aitchinson, MD – TPI believes that intense competition in this market will continue as big outsourcing companies and Indian outsourcers expand their operations around the world.

What emerges is a scenario of little fish ganging up on big fish, and chasing them away. What remains to be seen is whether small Indian companies will be able to end the reign of the Big Six. A very likely prospect from the drift of things.
For details read here.

The article is sponsored by A-1 Technology Inc, dealing in offshore outsourcing and offshore software development.