Further Analysis of Infosys & TCS's Outsourcing Contract (INFY)

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Includes: IBM, INFY

Lost in the noise last week about Infosys and TCS's win of a $250 million contract from ABN AMRO was the fact that biggest winner was IBM, which will collect $1.8 billion over five years for providing data-center and desktop-computing services to the bank. Further thoughts from analysts:

Analysts do believe that the deal highlights 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 (NASDAQ: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.

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 (NYSE: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 in India 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.

[BusinessWeek; Indian IT's Powerful Message, by Steve Hamm]