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Indian IT's "Powerful Message"

By Steve Hamm Banish any doubt that Indian providers of software services have entered the tech industry's big leagues. Proof came Sept. 1, when Tata Consultancy Services and Infosys Technologies (INFY) won large chunks of a five-year, $2.24 billion outsourcing pact from Dutch banking giant ABN Amro (ABN).

TCS's $250 million cut was the biggest deal ever won by an Indian outsourcer. The Mumbai-based company will provide software application maintenance and support in Northern Europe and Brazil. Infosys, which won a $140 million share of the pact, will offer similar services to the bank's operations in North America, Europe, and Asia.

BIG BLUE WINNER. "This signals a very powerful message about the global nature of competition and global servicing," says TCS Chief Executive S. Ramadori. He says the pact takes advantage of TCS's global network of offices, with employees located in Hungary and Brazil, in addition to India.

The biggest winner was IBM (IBM), which will collect $1.8 billion over five years for providing data-center and desktop-computing services to the bank.

The three companies, along with consulting powerhouse Accenture (ACN) and another Indian outfit, Patni Computer Systems, will also be able to submit bids for the bank's application development projects to be spaced out over the five years.

SLASHING HEADCOUNT. ABN Amro stuck its neck out with this deal by choosing to partly outsource its information technology, spread the contracts out among a handful of suppliers, and take advantage of the lower costs of offshore labor.

The bank expects to cut its IT headcount from 5,000 to 1,800 and save more than $300 million a year. About 2,000 employees will be transferred to the tech suppliers.

Tom de Swaan, ABN Amro's chief financial officer, says the bank will take aggressive advantage of the capabilities of the Indian companies and Indian labor. "This is a major step forward in optimizing operations," he says.

GLOBAL BRAWL. Analysts believe the pact plays to the strength of the Indian players. Roopa Unnikrishnan, a manager at New York-based outsourcing consulting firm Katzenbach Partners, says, "They're really good at innovating and developing people. It's really smart to use them on the software side, where things will be changing quickly."

In a report issued Aug. 23, Katzenbach Partners said it expects Indian IT outfits to ultimately lead on a global basis, potentially unseating such giants as EDS (EDS), BearingPoint (BE), and France's CapGemini.

Smaller U.S. companies are vowing to fight back. Rich Garnick, president of North American business services for Boston-based Keane (KEA), says he'll try to win reclaim share with a combination of American and Indian talent.

"YANKEE INGENUITY." Keane, a $900 million company, now has about 2,000 of its 9,000 workers in India. Garnick, formerly head of North American operations for Indian IT giant Wipro Technologies (WIT), says he plans on expanding that number to perhaps 20,000 over the next three years. "The Indians have a tremendous headwind," he says. "We're going to bring some Yankee ingenuity and get some of it back."

IBM, along with Accenture and others, is also rapidly expanding in India. Big Blue's workforce there shot up from 9,000 to 23,000 last year alone.

So the race is on between U.S. and European companies that are building up their capabilities in India and the Indian outfits that are expanding both in their target markets and in low-cost labor countries around the world.

Hamm is a senior writer for BusinessWeek in New York

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