Annuity contracts - are they safer outsourcing bets?

Visible effect of slowdown or even recession proofing – India’s IT sector focusing on smaller clients (shedding their dependence on large contracts) and craving for annuity type (plain vanilla BPO) contracts.

“Indian IT firms would have been better off garnering more large traditional outsourcing type contracts. These would have provided annuity type revenue and therefore more resilience during a recession,”

explains Siddharth Pai, Partner and Managing Director, TPI India, an outsourcing consultancy.

Oh, really? Now that even the large banks write down billions of dollars in losses, how can an outsourcing vendor ensure a steady stream of revenues since the solvency of the client itself is questioned? And then the bigger question – hedging outcomes of IT vendors themselves against their receivables in foreign currency and the derivative bets and mark-to-market (MTM) thunderbolts. WIPRO getting hit by a Rs.934 crore ($250 million) whirlwind. TCS, Infosys, Satyam, HCL Tech have all borne the brunt as well.

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