The Hindu Business Line : As far as one can see

Identified as one of the 10 flatteners in a best-selling book titled The World is Flat by the New York Times' Foreign Affairs columnist, Thomas Friedman, offshoring has entered the common lexicon and is here to stay.

As this theme plays out for the second year in a multi-year offshoring battle between Indian and multinational vendors, eWorld examined three key trends that are likely to dominate the software landscape in 2006.

Unbundled deals

2006 is expected to be the year when unbundled deals or the trend of moving away from a single vendor to multiple-vendor relationships will truly take hold.

This structural change involving fresh mega billion-dollar contracts, or rebidding of existing contracts, is likely to take shape in the global services arena. While this by no means heralds the demise of the billion-dollar deals, it just opens up the market for greater participation by offshore vendors in the years to come.

The $2.2-billion ABN AMRO deal signed in early September has ushered in this era. TCS and Infosys walked away with $400 million of application maintenance contracts and emerged as two of the five vendors (along with IBM, Accenture and Patni) contesting for application development.

Other players such as Wipro and Satyam are also priming their sales engine to capitalise on this opportunity.

General Motors, Wipro's existing client, is the next big unbundled deal on the horizon. With GM expected to spend $2.5-3 billion a year on outsourcing, Wipro, as a frontrunner and a strategic vendor of GM, is well-positioned to bag a share of this contract.

This deal is likely to be signed by the first quarter of 2006, ahead of the expiry of the 10-year contract signed by GM with EDS in June 2006. Similarly, Satyam recently inducted Hetzel W. Folden, part of the strategic deals team at Computer Sciences Corporation, to spearhead its effort in bagging large outsourcing deals in the $100-500 million bracket.

This will, however, not detract the domestic software majors from working on their time-tested formula of customer mining — building the existing client pipeline in different brackets, say from $1, 5 or 10 million to upwards of $50 million.

Broadbasing service offerings

The ability of software majors to sustain the momentum logged in new service offerings — such as infrastructure management, testing, engineering services and business process management and consulting — will be watched closely in 2006. There has been a sudden proliferation in new service offerings in the past couple of years, each one of which is touted as a multibillion-dollar opportunity. Since the opportunity landscape has been prised open largely by cross-selling so far, it will be interesting to see how these companies build on their existing portfolio.

For instance, Infosys Technologies is expected to maintain its aggressive posture in consulting, even as it enhances its range of new service offerings.

Tata Consultancy Services is also working on multiple flanks. Though it has not classified its revenues from new service offerings separately so far, it is pursuing engineering services and infrastructure management as the next engine of growth.

It has also made a foray into the platform BPO market through the UK-based Pearl Insurance contract bagged recently.

Wipro, which was among the first to broadbase its revenue streams, will be aiming to capitalise on its early foray in the field of infrastructure management and widen its presence in the R&D space through acquisitions such as NewLogic recently.

Software services contracts will continue to be predominantly structured on a time and material basis and to a lesser extent on fixed price basis. Some of the top IT companies, however, will also start to slowly dabble with new service offerings based on risk-rewards outcomes (for R&D work) or transaction/output based pricing (say, for insurance or mortgage or HR work) in 2006. This will probably be the year when IT firms worldwide will be more open to debate on its merits in greater detail.

Multinational tussle and consolidation

The two key multinational vendors, IBM and Accenture, have been on an aggressive recruitment drive over the past year.

According to the latest earnings call of Accenture in early October, it had 16,000 people in India out of 35,000 people operating in offshore multiple geographies. For IBM, the employee count will be comfortably 30,000. As these numbers are expected to swell, it is likely to place greater pressure on European peers such as Cap Gemini or Atos Origin and some US peers such as Keane to scale up using acquisitions.

The senior management of Cap Gemini and Atos Origin recently indicated that they are exploring the prospects of picking up mid-rung players in India.

This clearly shows that consolidation in the Indian mid-cap services space is likely to gather momentum in 2006.

This may be triggered off not necessarily by multinational or Indian vendors, but also by private equity firms such as Blackstone or Carlyle, if the pricing is attractive.

Recently, SAIF-II Mauritius, an offshore arm of Japan's Softbank Corp, took a strategic equity stake in the Hyderabad-based VisualSoft Technologies and is in the process of restructuring it through a couple of mergers.

In this exercise, it was also helped by Venture Tech Solutions and Chintalpati Holdings acting as portfolio investors.

maverick@thehindu.co.in

Illustration: K. Balaa