AgenciesFriction between the finance and business teams at IT services provider Infosys — which is facing two separate complaints by whistleblowers — regarding the way contracts are structured, may have triggered the most recent blowup, people in the know of developments told ET.
This comes at a time when Indian software services firms are seeing clients demand more bang for their buck. For Indian IT firms, businesses from traditional contracts remain flat or are growing only marginally, as clients apply pressure to cut costs, embrace automation and improve productivity. “Large deals are difficult to come by, and when they do come, they are not simple, but involve complex structuring,” said the person cited earlier.
Pai, who has helped close deals worth over $20 billion at an outsourcing advisory, said deals are being structured in such a way that companies earn lower margins initially, which can be covered through improved productivity and automation later.
In the letter to the Infosys board as well as market regulators in India and the US, whistleblowers cited the alleged lack of margins in large deals as a concern.
“Several billion-dollar deals of last few quarters have nil margin,” the letter, a copy of which was shared with ET, states. “Please ask auditors to check deal proposals, margins, undisclosed upfront commitments made and revenue recognition,” it adds.
Separately Indian firms have taken on staff from clients to win large deals, as well.
“Deals involving employee rebadging happen mostly in case of large transformational contracts which are not signed that frequently. Deals like TCS GM, Verizon Infosys, HCL Volvo don’t happen that often,” said Mrinal Rai, principal analyst at Information Services Group.
The Infosys Verizon deal came under scrutiny in the anonymous whistleblower letter, which claimed to be from “ethical employees”. Infosys took over around 2,000 people in the $750 million deal with US carrier Verizon.
In September, Tata Consultancy Services took over 1,300 employees from GM’s technical centre in India in a deal estimated at $600-$700 million, spread over five years. In 2006, around 2,500 employees of Volvo's IT services arm moved to HCL Technologies in a deal that was estimated at $1.75 billion.
This comes at a time when Indian software services firms are seeing clients demand more bang for their buck. For Indian IT firms, businesses from traditional contracts remain flat or are growing only marginally, as clients apply pressure to cut costs, embrace automation and improve productivity. “Large deals are difficult to come by, and when they do come, they are not simple, but involve complex structuring,” said the person cited earlier.
Analysts point out that several clients have asked Indian IT services firms to cut rates and commit to costs savings upfront. “Indian IT service providers are now the incumbents. Clients have worked with them for many years and they understand the business,” said Siddharth Pai, a technology analyst. “They are looking at cutting costs, improving productivity. It is better to retain a client than losing them in this dynamic market”. Indian IT firms have seen average deal sizes reduce to $17.2 million in the first half of 2019, against $22.9 million in the same period last year, according to researcher GlobalData.
Pai, who has helped close deals worth over $20 billion at an outsourcing advisory, said deals are being structured in such a way that companies earn lower margins initially, which can be covered through improved productivity and automation later.
In the letter to the Infosys board as well as market regulators in India and the US, whistleblowers cited the alleged lack of margins in large deals as a concern.
“Several billion-dollar deals of last few quarters have nil margin,” the letter, a copy of which was shared with ET, states. “Please ask auditors to check deal proposals, margins, undisclosed upfront commitments made and revenue recognition,” it adds.
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Separately Indian firms have taken on staff from clients to win large deals, as well.
“Deals involving employee rebadging happen mostly in case of large transformational contracts which are not signed that frequently. Deals like TCS GM, Verizon Infosys, HCL Volvo don’t happen that often,” said Mrinal Rai, principal analyst at Information Services Group.
The Infosys Verizon deal came under scrutiny in the anonymous whistleblower letter, which claimed to be from “ethical employees”. Infosys took over around 2,000 people in the $750 million deal with US carrier Verizon.
In September, Tata Consultancy Services took over 1,300 employees from GM’s technical centre in India in a deal estimated at $600-$700 million, spread over five years. In 2006, around 2,500 employees of Volvo's IT services arm moved to HCL Technologies in a deal that was estimated at $1.75 billion.
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