MUMBAI/BENGALURU: An agreement by Tata Consultancy Services (TCS) to take over 1,300 employees from GM’s technical centre in India could spur a wave of similar deals in the automotive research and development space, analysts said, as carmakers shift focus to autonomous vehicles and look to outsource legacy work.
The deal, the second such this year, has been pegged at $600-700 million spread over five years. Earlier this year, France’s PSA Group transferred 2,000 engineers in Germany to French engineering firm Segula Technologies. PSA had acquired the German engineering centre when it bought the Opel and Vauxhall brands from General Motors in 2017.
Last week, L&T Technology Services won an engineering services deal with a European automotive original equipment manufacturer to help develop its electric powertrain practice.
“Because automotive companies are facing so much disruption, they are now willing to engage with Indian IT services providers, which they weren’t in the past,” Pareekh Jain, founder of engineering services consultancy Pareekh Consulting, told ET. “Now they are willing to outsource legacy R&D work. Similar deals can happen with other Indian IT service providers as well.”
Jain said some Indian IT services providers had been interested in the PSA-Segula deal as well. “Automakers need to focus on going autonomous, so that’s like going up the value chain. They must hire skills for autonomous and not waste precious resources on traditional technology,” said Sanchit Vir Gogia, CEO, Greyhound Research.
Analysts said the TCS-GM deal could be valued even higher with recurring revenue components.
Indian IT services companies and smaller engineering services players do some amount of work for automobile firms, but this is the first large ‘lift-and-shift’ deal for an Indian IT company in a space that typically sees smaller project-based deals.
“The OEMs will look to optimise and some work may go to IT service vendors...captives may not be as cost-efficient as some of these vendors. There are benefits with vendors taking up such work like domain and technology expertise, apart from cost-efficiency,” said Apurva Prasad, an IT research analyst at HDFC Securities.
Taking over employees also helps IT companies deal with a key issue in engineering R&D — talent. “There needs to be domain knowledge. It isn’t like IT services where you can bring someone in and train them in three months. With these deals, companies get the talent, which will help them win new deals,” Jain of Pareekh Consulting said.
On Tuesday, TCS CEO Rajesh Gopinathan held a town hall with the GM technical centre employees, assuring them that the integration would be smooth and engineers would be able to work on diverse projects.
The deal, the second such this year, has been pegged at $600-700 million spread over five years. Earlier this year, France’s PSA Group transferred 2,000 engineers in Germany to French engineering firm Segula Technologies. PSA had acquired the German engineering centre when it bought the Opel and Vauxhall brands from General Motors in 2017.
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“Because automotive companies are facing so much disruption, they are now willing to engage with Indian IT services providers, which they weren’t in the past,” Pareekh Jain, founder of engineering services consultancy Pareekh Consulting, told ET. “Now they are willing to outsource legacy R&D work. Similar deals can happen with other Indian IT service providers as well.”
Jain said some Indian IT services providers had been interested in the PSA-Segula deal as well. “Automakers need to focus on going autonomous, so that’s like going up the value chain. They must hire skills for autonomous and not waste precious resources on traditional technology,” said Sanchit Vir Gogia, CEO, Greyhound Research.
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Analysts said the TCS-GM deal could be valued even higher with recurring revenue components.
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Indian IT services companies and smaller engineering services players do some amount of work for automobile firms, but this is the first large ‘lift-and-shift’ deal for an Indian IT company in a space that typically sees smaller project-based deals.
“The OEMs will look to optimise and some work may go to IT service vendors...captives may not be as cost-efficient as some of these vendors. There are benefits with vendors taking up such work like domain and technology expertise, apart from cost-efficiency,” said Apurva Prasad, an IT research analyst at HDFC Securities.
Taking over employees also helps IT companies deal with a key issue in engineering R&D — talent. “There needs to be domain knowledge. It isn’t like IT services where you can bring someone in and train them in three months. With these deals, companies get the talent, which will help them win new deals,” Jain of Pareekh Consulting said.
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On Tuesday, TCS CEO Rajesh Gopinathan held a town hall with the GM technical centre employees, assuring them that the integration would be smooth and engineers would be able to work on diverse projects.
( Originally published on Sep 18, 2019 )
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