The Indian software industry is keeping a close watch on the performance of the markets in US and Europe, a tendency that is likely to continue throughout 2009. Top tier IT players in India have slated recruitment plans for the next fiscal based on the business orders they get during the January to March quarter. ?Hiring plans for the April-June quarter in India are primarily dependent on the business renewals that take place in January. By January end, recruiters will get a picture of how much the industry will actually be hit this year, which will naturally impact recruitments and job cuts,? says BS Murty, CEO of staffing company Human Capital.
However, increase in number of renewals in software outsourcing contracts does not necessarily spell added revenue for software services companies. Poor corporate performance is driving a lot of clients to seek renegotiations, some of them premature, at discounted rates. Clients are looking closely into cost of contracts, and while business needs vary with each contract, they are seeking optimal services from software vendors for a larger and higher quality offering. CIOs of client companies are seeking straight discounts of 6% to 8% on last year?s contracts.
Traditionally, software outsourcing contract renewals are done through the year and don?t necessarily have a seasonal trend. This January, however, the number of software outsourcing contract renewals are expected to see an increase of 10-15% compared to the corresponding period last fiscal. Software outsourcing firms expect this trend especially with American and European companies that follow a January-December fiscal calendar.
According to Sabyasachi Satpathy of Mindplex Consulting, ?This year, owing to poor business performance of 2008, US companies are starting renegotiations even before their existing deals reach maturity. The focus on the renewals however, is more on IT cost reduction and increased value from services for the clients. IT vendors are being asked to offer concessions in billing rates.?
Traditionally, premature contract renewals would not happen often, and are triggered by significant changes within the organisation or broader strategic reasons. According to Chandramouli, an engagement manager with IT consulting company Zinnov, its clients initiated unscheduled renewals discussions about two months ago. ?This month, 15% to 20% of the contract renewals will be premature in nature. Clients are proactively introducing new clauses in contracts to ensure business continuity and favourable options for themselves such as vendor transition. This will put more pressure on Indian software companies, pushing them to deliver more bang for the buck,? he added.
To survive the slowdown, US-based clients are compelled to restructure and renew existing practices. ?Companies are looking for more stringent service-level agreements and contracts, which could help them increase the value they get for their dollar. Additionally, they are also asking service providers to take ownership of the costs related to market fluctuations,? Chandramouli said. ?With the Satyam fiasco, clients will tighten the standard contract terms and ensure better IP protection through the renewed contracts.?