India will likely hang on to its reputation as the world's biggest outsourcer, but China should not be underestimated in the long run
Infosys Technologies and IBM are locked in a battle to acquire the Indian IT captive unit of the world's largest mutual fund company, Fidelity Investments.
The deal may involve $150-180 mn upfront transaction in return for an assured multi-year outsourcing contract, at least two people involved with the matter said.
A senior official at one of the companies bid-ding for Fidelity's back-office business said, "IBM has offered to pay around $150 mn for the unit while Infosys has indicated that it could pay up to $180 million," he said, requesting anonymity. Though Wipro is still left in the fray, the tussle is between IBM and Infy as of now, a person involved in the negotiations said.
Fidelity outsources around $50 mn worth of projects to Infosys every year. For IBM, Fidelity is an over $200-million customer. Officials at Infosys and IBM did not offer any comments in response to an e-mail query sent by ET on Thursday. When contacted, a Fidelity spokesperson said: "We can confirm that as part of our global business transformation strategy, we are exploring options to optimise our Technology Delivery Model.
We are evaluating sourcing options with leading global technology service providers to maximise the value we can offer our stakeholders, including employees. It is too premature in the process to talk about specific details and anything else is purely speculation at this stage."
Banking sources said other bidders such as Capgemini, Accenture and HP-EDS have dropped out of the race. Tier-II Indian firms such as iGate explored the possibility of bidding, but did not make much advance with Fidelity laying down stiff conditions to enter the race.
Fidelity's IT captive is part of the India-based Fidelity Management & Research (FMR), with centres in Bangalore and Chennai employing approximately 2,000 people. Accenture is believed to have quit the fray after indicating that it may not absorb the entire employee count, but this could not be verified independently.
An outsourcing expert, who did not wish to be quoted, told ET on Thursday that IBM could score over Infosys because of its over two-decade old relationship with Fidelity. "Around 15-20 years ago, Fidelity and IBM had come together to form Fidelity Employee Services Company, or FESCO - so, IBM has much deeper relationship with Fidelity," he reasoned.
While Infosys brings pure off-shore expertise, IBM derives three times what the Indian giant gets from serving Fidelity globally. In the past six months, US financial behemoth Citigroup and UK insurance giant Aviva sold their captive back-office operations.
WNS Holding paid Aviva $228 million upfront cash and received $1-billion outsourcing contract spread over 8 years while Tata Consultancy Services (TCS) acquired Citigroup's BPO arm for $505 mn in return for business worth $2.5 bn in the next nine years.