Infosys Technologies has won a landmark deal in the business process outsourcing sector, capturing a contract worth $250m with electronics giant Philips.
Infosys, which is India’s second largest IT services contractor, will take on responsibility for handling Philips’ finance and accounting (F&A) functions and the processing of its purchasing orders over the next seven years.
As part of the deal, Infosys will spend $28m on acquiring Philips’ internal F&A division, which includes 1,400 employees based at delivery centers in India (which houses 445 of the Philips team), Poland (765) and Thailand (190).
The contract is a significant one for Infosys and for the BPO sector as a whole. For the vendor, it is its largest single success in the F&A space to date, and according to Amitabh Chaudry, head of BPO at Infosys, it makes the company one of the five largest F&A outsourcers worldwide, alongside Accenture, IBM, Genpact and Capgemini.
Infosys has 3,500 employees providing F&A and procurement services and has 15 clients in the F&A space. The company’s BPO revenue increased 69% to $145m in the year ending March 31, 2007.
Chaudry told Computer Business Review that 15 suppliers were originally invited to bid for the project in March, which was then whittled down to a shortlist of two. Gerard Ruizendaal, chief strategy officer at Philips, highlighted Infosys’ willingness to invest in people with a strong HR process, and its robust risk mitigation and transition plan as factors behind its selection.
Infosys sees potential to win further F&A work from Philips. Chaudry said: There is a further 1,500 employees remaining within Philips finance department that haven’t been outsourced who provide compliance, auditing and SG&A [selling, general and administrative] work. We hope to convince them to outsource more of this work.
The deal is also unusual in that the Indian vendors have not won many outsourcing deals which have involved the transfer of staff or physical assets. This is partly because the suppliers do not want to take on large numbers of western IT or back-office workers as it would have a negative impact on their profits margins, which rely on delivering work from low-cost offshore centers.
The other high-profile example where an Indian services company was involved in a staff transfer engagement came two years ago when Tata Consultancy Services won a 480m-pound ($960m) deal with UK insurance company Pearl Group which saw it take on 950 of the client’s employees. Chaudry said: We will look at other deals of this kind where it adds value for us in terms of domain expertise.
The contract also represents one of the largest wins in the F&A space to be won an out-and-out offshore services specialist. Indian services vendors are having more success in F&A and procurement outsourcing than they are in one of the other key areas of the BPO market, human resources outsourcing, and Chaudry said: We are seeing more work in the F&A space because this is an area where a lot of organizations have already centralized their global operations, which makes it easier to outsource.
The takeover of the Philips operation is only Infosys’ second outright acquisition to date, following its purchase of Australian financial services specialist Expert Information Services for $24m in December 2003. Recent speculation that the vendor was preparing an ambitious takeover bid for French consulting and outsourcing giant Capgemini has now receded.