Software majors may eye short-term contracts in US

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Bangalore, Mar 18: The country’s top software exporters are likely to focus on short-term contracts in the US to meet revenue targets in a declining American economy.

According to analysts, short wins and engagements – worth less than $20 million over one to three years – could become hotter, as a slowing economy could hold up long-term investments in the US markets.

According to managing partner of advirsory company TPI Siddharth A Pai, “Conventional wisdom suggests that companies would go for short-terms contracts to meet revenue targets in times of recession. A clear impact of a recession, however, is yet to be seen.”

Traditionally, around 30% of revenue streams for Indian software majors accrue from contracts of less than $20 million in size, while close to 40% of the revenue-pie comprised `bread-and-butter contracts,' of projects sized between $25 million and $100 million. The remaining money flows in from the large-sized and mega deals, ranging from $150 million to $1 billion.

“In times of recession, longer term engagements are generally scarce. To hit their revenue targets, companies will compensate that shortage by an immediate focus on short-term wins. If the recession is protracted, then there would be a subsequent attention on longer term wins,” Vinu B Kartha of Tholons said.

Mega-deals, owing to their sizes, were more cyclical in nature than economy-dependent. They were unlikely to be affected by recession.

Meanwhile, smaller companies, which traditionally focus on short duration and specialised contracts would be hard-hit as large players will eat into their market. “Smaller companies will face two challenges: they cannot command a premium price like larger competitors and they will have to fight competition from the bigger firms,” Kartha said.