A report from Deutsche Bank into the plans of CIOs at four major European banks has revealed that the major Western IT services companies face losing business to Indian suppliers because of their reluctance to truly harness the offshore capabilities that banks want.
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The findings lay bare the opportunities for offshore suppliers to make gains during the current uncertain economic climate as large businesses look to transform their organisations to reduce costs without reducing performance levels.
The research was carried out by the German banking giant and management consultancy group Value Leadership Group. The researchers had detailed conversations with the CIOs of four of the top 10 European banks.
The report found that a slowdown in economic activity could see the big European banks increase offshore activity to cut costs and transform processes. It said that because incumbent multinational suppliers, such as IBM and Accenture, are reluctant to increase the proportion of their services delivered from offshore locations, Indian companies that have a higher proportion of offshore delivery stand to win business.
"Most banks we polled complained that despite the service agreements, during the last financial year [multinational] firms like Accenture and IBM saw resource issues offshore and used a greater proportion of their onsite headcount while executing application development projects," said the report. This increased the overall cost, it said.
Indian firms enable transformation
The report, Indian IT Services: Slowdown to propel market share gains for offshore firms, said the delivery quality of the Indian companies is equal to that of large US and European multinational suppliers, but the willingness of Indian companies to shift more work offshore is increasing their market share.
"In our view, the biggest positive for the Indian IT services industry since the last downturn has been its acceptance as a viable low-cost, high-quality IT services delivery model across service function," said the report. "Most banks have embarked on long-term plans to increase delivery from offshore locations. We estimate these are likely to last until 2014. Importantly, the banks rate the delivery quality of the Indian vendors at par with that of their [multinational] counterparts and view Indian vendors as strategic partners in this initiative. Thus, in our view, the current economic slowdown could in effect further accelerate market share gains by Indian vendors."
According to the research, companies such as IBM and Accenture are "less able or keen to incorporate" changes to increase the proportion of work done offshore.
This is despite "the focus of banks [being] to increase the percentage of the work done offshore", according to Peter Schumacher, CEO at Value Leadership Group.
He said this is not just a trend in European banking, but is true across sectors and it involves businesses, in partnership with offshore suppliers, transforming their organisations. "Across the four banks, the theme that is emerging is that Indian firms are enablers for organisational transformation."
Positive outlook despite economic uncertainty
No wonder the organisation representing the Indian IT industry is so confident. Earlier this year, the National Association of Software and Services Companies (Nasscom) said its IT services members are confident despite concerns of a double-dip recession. According to a report in the Economic Times of India in August, Wipro IT CEO TK Kurien sees it as an opportunity. He said the structural weakness in the economy offered opportunities to IT services companies to help global corporations make their IT more flexible.
Schumacher at Value Leadership Group said Tata Consultancy Services (TCS) and Cognizant are set to be the big winners as a result of this trend.
Earlier this month, Deutsche Bank contracted Indian TCS to transform IT support at its investment banking arm across seven countries. The five-year contract will see TCS provide IT services aligned to the IT Infrastructure Library services model in the US, UK, Germany, Hungary, Philippines, Singapore and India.
Deutsche Bank's retail operation last year replaced multiple legacy systems with a banking platform from TCS. The bank is using TCS's BaNCS system in 30 countries. BaNCS provides banking functionality including account services, interest and charges, liquidity management, funds transfer and payments, statements, risk management and reporting.