BANGALORE/MUMBAI: In what could potentially bring outsourcing projects worth $1 billion to India over the next five years, Dutch banking major ABN Amro is set to renew its contracts for managing the bank’s software applications and computer hardware systems with IBM, Tata Consultancy Services (TCS) and Infosys Technologies.
The original contract signed by ABN Amro in 2005 was worth $2 billion, spread over five years, and had five vendors — IBM, Accenture, TCS, Infosys and Patni. The bank had then aimed to save nearly $250 million every year by working with fewer vendors and consolidating its IT infrastructure.
Now, having gone through several restructuring itself, including its merger with Fortis Bank and nationalisation, the bank plans to cut the vendor base further, and drive the integration of different banking systems through outsourcing.
According to at least three people familiar with ABN Amro’s outsourcing decision, the bank has retained IBM for managing communication networks, desktops and computer servers, and plans to reduce the number of software application outsourcing vendors to two from the current three.
” TCS has already started handling incremental and new projects, and Infosys too has deep relationship with the bank, especially with Finacle. This leaves Patni and Accenture in a tight spot,” said one of the persons familiar with ABN Amro’s outsourcing.
He requested anonymity because the bank has not yet officially announced the renewal of contracts. He added that around 300 Fortis employees would get transferred to IBM’s payroll as part of this transaction.
IBM is also working on an integration plan for ABN Amro and Fortis, and aims to consolidate the IT systems by 2012, another person familiar with the process added. Officials at TCS and Infosys declined to offer any specific comments on Monday. ABN Amro officials had not responded to an email query sent by ET.
In a year when top outsourcing firms are hoping that customers would revive their tech spending, this could be the beginning of a series of such renewal opportunities being pursued by almost every vendor.
Outsourcing experts from research firms such as Ovum said around 500 contracts worth nearly $37.5 billion are set to expire by September this year, ranging anywhere between $1 million and $1 billion each. Among them, while China Mobile plans to adopt a total outsourcing model by giving away computer hardware and application development activities to a set of vendors, Verizon is looking to lower its operational costs by sending out some work overseas.
Larger offshore vendors, which now include the likes of HP, IBM and Accenture, are likely to bid for a number of contractual opportunities, Jens Butler, principal analyst at Ovum said in a recent interview with ET. “Cost-cutting is not the only theme, it is a component of client requirements,” added Butler, who is based in Sydney, Australia.
For vendors seeking to renew an existing outsourcing contract, the pressures of doing more with less is a perennial challenge, experts say.
“Right now, suppliers’ leverage is weak in the market, and in general the supplier doesn’t gain as much in renewals as when signing the deal for the first time,” said Ameet Singh, vice-president, global delivery, at outsourcing advisory firm Everest. “Billing rates are likely to remain same or go up slightly in most renewals given the soft environment. Buyers will look to drive more efficiency, which could be in terms of increased scope of work and better productivity,” he added.