TCS set to close new contracts worth $1 billion with Marks & Spencer

Tata Consultancy Services (TCS) is poised to near extra contracts worth $1 billion with British retailer Marks & Spencer in next few weeks, people who are aware of the developments said.

This will mark this year’s biggest deal win for India’s top software exporter, which is also in line to renew its existing five-year engagement with the UK-headquartered company.

“Apart from the 2018 deal renewal, there are multiple additional deals in the pipeline with a cumulative value of over $1 billion that M&S is expected to close,” an industry executive. “As an existing partner, TCS is in the frontline to win these deals,” the person added, speaking on the condition of anonymity.

The new deals in the pipeline include mandates for business process services and digital transformation programs, among others. These engagements are expected to be spread out over a duration of 8-10 years. M&S representatives did not respond to queries till press time.

“As per policy, we do not comment on market speculation,” TCS said in an emailed response to queries. These large deal wins are significant at a time global enterprises turn cautious about technology spending.

Many companies are also resorting to more outsourcing as they drive costs and organizational efficiencies in a tough macro environment. There are vendor consolidation deals worth $160 billion, which are coming up in the January-March quarter led by companies searching for better pricing.

“With a weakening macro environment, clients have started cutting discretionary spends with an increased focus on cost optimization. In general, cost optimization deals are of longer duration and larger in size,” a recent report by Motilal Oswal said.

In 2018, TCS became a strategic partner to the global fashion retailer. It has since worked on human resource solutions addressing over 80,000 employees of the British company, as well as a solution using the Oracle supply chain management platform.

The Indian IT services exporter was also designated as a strategic technology partner as it helped M&S transition to a new technology operating model. Large-cap Indian IT service providers have an edge when it comes to snagging large deals aimed at cost optimization.

TCS reported a $700 million plus order from UK-based Phoenix Group last month, the largest deal so far in this fiscal year. The deal came from the extension of a $2 billion engagement it had won in 2019 from the same group.

Recent big deals bagged by Indian IT firms include Wipro’s five-year multi-million dollar transaction with Mazda Motors and Finastra.

While HCLTech has snagged a multi-year deal to digitize security and workplace solutions for Mondelez Internationa, in addition to a digital transformation deal from State Farm, among others. Infosys has reported that it has signed large orders worth $3.3 billion during the October-December quarter but it did not disclose further details.

TCS had said in January that it sees increasing caution among clients that is leading to more deals focused on cost optimisation and vendor consolidation.

Recently, TCS took over a project for UK-based National Employment Savings Trust (Nest) after it terminated its 18-year $1.8 billion IT transformation contract with French provider Atos.

While the organization is still evaluating the new vendor, TCS stands a good chance as a frontrunner to bag the deal in its entirety, sources said. The company has also won a mandate from Boeing to outsource a third of the airline manufacturer’s jobs. Several big tech companies have even rationalized employee headcount citing “overestimation” of demand.

Industry experts are of the view that there is a need to look at all the renewal deals and whether they see increasing components of consolidation or remain with the same vendors.

“A lot of them will stay with the same provider, but with reduced cost or some other advantages. Because service providers are also incurring much higher costs on labour and they will be smart about these deals,” said Phil Fersht, chief executive, HfS Research.

Pareekh Jain, founder of EIIRTrend, a technology advisory, said there will be both components of cost optimization and transformation in deals going forward.

“There will be a significant share of transformation because it helps the vendors optimise delivery costs as well, especially if they can loop in their platform offerings,” he added.

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