In the wild, it is a common strategy for the predator to single out the weakest prey and chase it down for a kill. In the cut-throat market for outsourcing deals, too, it works much the same way, and a wounded Hewlett-Packard is fair game for Indian software companies desperate to win new contracts.
"Indian outsourcing companies are aggressively attacking HP, which is a very vulnerable target right now," said Peter Bendor-Samuel, founder and CEO at Everest Group, a Texas-based outsourcing advisory and market research firm. HP, sitting on plum contracts with the likes of American Express and Bank of America, is vulnerable as these deals worth billions of dollars are coming up for renewal.
About $100 billion (Rs 5.4 lakh crore) worth of IT outsourcing deals will expire in 2013, the Everest Group estimates, with 15% of it being with HP. PC maker HP entered IT services with its 2008 buy of EDS for $14 billion, but successive leadership changes in 2010-11, took a toll on investor confidence.
Dissatisfied clients easy prey
HP, whose shares have fallen 60% since early 2010, recently wrote down about $8 billion in the value of its services business and is cutting about 29,000 jobs, raising a red flag for clients. Bangalore-based MphasiS, earlier an EDS company, is now part of HP.
While every outsourcer in the top tier is competing hard for HP's clients, the most aggressive and successful ones are HCL Technologies and Tata Consultancy Services, observers said. So while the success rate for Indian companies in the renewal market is around 30%, TCS and HCL Technologies are winning 60% of the renewals involving HP clients.
While the companies declined to comment for this story, those familiar with their functioning said the sales teams are systematically chasing and winning clients from HP. "Large clients working with HP for last the 5-7 years are seeing relationship fatigue and are ready to work with new vendors," said a senior industry executive, requesting anonymity.
"What we are promising instead is more value with lower price, transparency in delivery and flexibility." The fate of HP, which Chief Executive Meg Whitman is looking to rebuild, is neither new nor unique. In 2009, after India's then fourth-largest software exporter Satyam Computer was hobbled by an accounting fraud, rivals quickly tried to win over the Hyderabad-based company's most lucrative customers.
Among the deals won by the HPEDS combine, a large proportion relates to IT infrastructure, bread-and-butter areas for HCL Technologies and TCS. A concern for HP is that increasingly, clients are seeking flexible engagement models with elements of computing offered as a service, lower costs, and higher value.
These are increasingly hard to offer for traditional players that haven't changed with the new market realities . This is creating frustration among clients, making them look for alternative service providers , analysts said. Using client dissatisfaction to get a foot in the door, Indian players are aggressively pitching newer technology-based solutions to these clients at lower price points.
"Everybody loses clients; that is part of the game. But the key is to be able to win new clients to compensate for the ones that you lose, and that is the more worrying sign for HP. We have hardly heard of any large new deals involving HP," said the India head of a large multinational outsourcer.
Some analysts also see signs of HP making a concerted effort to protect its turf. "Quite frankly, it will be a challenging period, but I think HP is taking some right steps to make sure that its existing clients feel secure and comfortable," said Frederic Giron, vice-president and principal analyst at Forrester Research.
"Time will tell." What may work in HP's favour is the fact that transitioning from one service provider to another, especially after several years of engagement, is very difficult. Rachael Stormonth, senior vice-president at US-based outsourcing advisory Nelson Hall, said HP's enterprise services unit has for years suffered from under-investment in corporate functions and in portfolio development.
"The lack of investment in the portfolio has been evident. But HP enterprise services is arguably better positioned in 2013 than it has been in the last few years to contest such deals," she argued.
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