Indian IT biggies may lose GE business
By siliconindia   |   Tuesday, 14 September 2004, 19:30 IST
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MUMBAI: General Electric (GE) is likely to reduce the number of Indian offshore vendors that it has been working with as a result of the bill rate re-negotiation that it undertakes every three years, reports Economic Times. GE is also trying to reduce billing rates. Some of the prominent domestic software vendors likely to be affected by a cut in bill rates and a change in GE’s services agreement are: Tata Consultancy Services (TCS), Patni, iGate Global, Satyam Computer Services and Wipro. GE recently appointed two Indian companies, Mindtree and Polaris Software Labs, even as it is in the process of driving down bill rates for old vendors, sources said. Prices for most of GE’s contracts are reviewed periodically. “GE is known to bargain for rates as low as $13-15 per hour,” sources said. Mindtree Consulting, a mid-sized IT services firm promoted by former CII chairman Ashok Soota, entered into a medium term engagement with GE in June ’04 to set-up a development centre for the latter’s business units. The arrangement will involve servicing GE’s equipment business involving long term assets such as leased aircraft, freight trains and trucks, Mindtree COO Subroto Bagchi said. Polaris, the Chennai-based banking software product and services vendor, is GE’s other newly appointed offshore software vendor. Last year (September ’03), GE’s plans to re-negotiate billing rates for its India business entailed change of all existing IT vendor contracts to fixed price (FP), from time & material (T&M) contracts that were prevalent until recently. An increase in FP contracts, though a good bargain for price conscious customers as GE, affect existing billing rates and reinforce pricing pressure for IT vendors. Analysts suggest that downward billing rates hit vendors’ operational costs significantly. Industry estimates suggest GE outsources work between $300-350 million from its preferred lot of Indian software vendors every year. During a re-negotiation, the current market price (billing rate) and the price at which the contract was entered into are considered to arrive at the new rate. Most vendors are affected when the new billing rate is discounted substantially from the previous one. That’s reason enough for vendors to look for business from other large customers and simultaneously reduce exposure to GE.

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