IT firms in queue for Cemex deal

The $1-bn contract, one of the largest outsourcing deals in recent times, might not be limited to services

Indian information technology majors Tata Consultancy Services (TCS), Wipro and Infosys, and global players such as IBM, are vying for a contract worth $1-1.2 billion from the Mexico-based Cemex, the world’s third-largest cement maker.

The seven-year outsourcing deal is in its last stage of bidding and covers both IT and business process outsourcing. Sources said the deal might also involve the sale of Neoris, a subsidiary of Cemex that provides IT services and consulting. However, this could not be confirmed.

When asked, Jorge L Pérez, spokesperson for Cemex, said: “As part of our transformation process, we are constantly seeking to drive more innovation, to make our company more competitive, flexible and efficient. Recently, we have been exploring the possibility of outsourcing some back-office support services. We haven’t made any decisions yet, nor signed a contract with any company. We will continue exploring alternatives and will share any developments that warrant sharing.”

EYEING BIGGER PIE

Big IT companies 
Tata Consultancy Services, Wipro and Infosys, along with global players such as IBM, are vying for the contract

7-year outsourcing deal
Covers both IT and business process outsourcing. It is in its last stage of bidding 

Neoris 
The deal might also involve sale of Cemex’s subsidiary

• The $15.14-billion Cemex has presence in 50 countries and 44,000 employees
• |An asset sale and outsourcing deal will help the world's third largest cement maker reduce cost

The $15.14-billion Cemex has presence in 50 countries and 44,000 employees. An asset sale and outsourcing deal will help reduce cost. Cemex, according to international media reports, is in the midst of talks with banks to extend the maturity of its loans by three years.

When asked, a TCS spokesperson said, “The company does not comment on market speculation.” Wipro, in an email response, said: “Wipro, as a policy, does not comment on market rumours.”

Industry sources in the know of the contract also said the deal would not be a pure services contract but could also have components like an asset takeover from Cemex or of some platform. “If you see any of the recent $1-billion deals, none have been pure services. Either the contract has a large asset takeover component or sell-out of a business unit of the client or taking over of some operational process. The Cemex deal has a similar component,” said a senior industry source, on condition of anonymity.

The recent deal signed by IBM with Sandvik, the Scandinavian engineering group, said IBM would provide employment to people who’d get impacted by the outsourcing deal. Closer home, TCS, when it acquired the Pearl Group (now Phoenix Group) in 2005, had also acquired the firm’s insurance platform.

The deal is of significance for two reasons. One, such large contracts have become rare after the 2008 recession. The January-March quarter saw a single mega deal, worth $1.5 billion from the Americas, according to the Information Services Group’s TPI Index. The other reason is that this deal also highlights the recent trend of focus among IT services on emerging markets such as Latin America, China and South Africa.

“In the past three to four years, companies have been increasing their focus in the emerging markets such as China, Brazil, India and others. In recent times, some of the large deals have indeed come from emerging markets. However, unlike 2004-05, when such large deals were common and had services as its major component, now services will not be the sole component,” said Amneet Singh, vice-president, Everest Group, a global outsourcing advisory.