TCS, Infosys, Wipro battle it out for mega Citigroup outsourcing deal

Bengaluru: Don Callahan may be an unfamiliar name to many in India, but for companies in the country’s $150 billion outsourcing business, the head of operations and technology at Citigroup Inc. could be quite the game-changer.

Callahan will decide the winner of the largest outsourcing contract up for grabs in close to a decade. The last time the contract was awarded, in 2008, it was worth $2.5 billion for a 10-year period.

In October, industry leader Tata Consultancy Services Ltd (TCS), which won the contract in 2008, and its smaller rivals Infosys Ltd and Wipro Ltd took turns to woo Callahan while he was in India, according to two executives familiar with the matter.

The stakes are high as information technology companies are being forced to look for newer avenues of growth in a tough environment. More importantly, an outsourcing contract worth a billion dollars is getting rarer by the day due to the broader belt-tightening by their clients across the globe.

“Citi is a very attractive win, but also a brutally tough customer,” said Ray Wang, founder and chief executive of technology advisory firm Constellation Research. “I believe all three will be aggressively competing for the deal.”

All three IT companies declined to comment, while Citigroup did not respond to a request seeking comment.

Over a half-day visit to one of Wipro’s Bengaluru facilities, Callahan met B.M. Bhanumurthy, the company’s chief operating officer (COO), and Rishad Premji, the chief strategy officer and son of chairman Azim Premji. Wipro used the chance to showcase its artificial intelligence (AI)-powered platform Holmes.

Meanwhile, cross-town rival Infosys’s COO U.B. Pravin Rao showed Citigroup executives how its AI-powered platform Mana and user-centric approach of design thinking were helping its engineers to go beyond their scope of work and help existing clients.

And Mumbai-based TCS, led by CEO N. Chandrasekaran, showcased its new blockchain-related products to Callahan.

Callahan’s visit to the headquarters of India’s top three IT services exporters is significant as it marks the start of a 12-18 month process during which Citigroup will decide the work it wants to outsource, the number of vendors it wants to have, and the contract size and duration.

It is expected to invite bids from foreign and Indian technology vendors after calling for so-called RFPs (request for proposals) in March next year, before awarding the contract by March 2018, according to the two executives familiar with the development.

“Most of the discussions centred on automation and cognitive capabilities and the newer technologies we are building,” said one of the executives on condition of anonymity.

TCS won the $2.5 billion outsourcing work in October 2008 for managing Citigroup’s back office operations for nine-and-a-half years. TCS also paid $505 million to Citigroup to buy its India-based captive business processing outsourcing arm, Citigroup Global Services Ltd. Additionally, Citigroup gives more than $200 million in business annually to TCS, $100 million to Infosys and at least $50 million to Wipro.

“These meetings (with Don Callahan) and other clients certainly influence the way RFPs are prepared,” said technology consultant Siddharth Pai, who has personally led over $20 billion in complex, first-of-a-kind outsourcing deals. Pricing, newer technologies, and the areas of existing revenue that could be sacrificed or cannibalized will all be looked at, Pai added.

Getting a billion-dollar outsourcing contract is a mammoth task for IT firms these days as clients are looking to cut costs. To make things hard, clients are increasingly clamouring for newer technologies such as data analytics and automation, and cognitive platforms to run their business better.

Wipro last bagged a $1.1 billion deal from Canadian utilities firm Atco Ltd in July 2014, while media ratings firm Nielsen NV doubled its earlier $1.2 billion contract awarded to TCS to $2.5 billion in 2013. Infosys does not have any $1 billion client, while India’s No. 4 firm HCL Technologies won an over $1 billion contract from Volvo group earlier this year.

A multi-year, large outsourcing contract assures a stable revenue stream. None of the country’s three largest technology vendors is expected to record more than 9% dollar revenue growth in the current financial year.

Wang said the odds were against the incumbent TCS.

First, all outsourcing contracts up for rebid are being renewed at a lower price, and executives at both Infosys and Wipro are looking at an “at least 20-25% price reduction”. Second, Abidali Neemuchwala, who is currently at the helm of Wipro, was one of the chief architects behind TCS winning the deal in 2008.

“Abid should know that deal structure very well. Given how TCS is massively discounting to win deals, I’m sure their competitors will be happy to return the favour,” Wang added.

While Wipro is ahead in AI thanks to Holmes, TCS has a strong investment in blockchain and Infosys has the better design thinking approach.

Wang expects American MNC IBM to bid for the contract as well as its “blockchain and security teams are rapidly becoming top-tier in the industry”.