Major Indian IT services exporters are shooting down their ‘tail accounts’ in a move to reduce their costs and to develop better strategic relationships with the big and select clients. This comes in spite of the hard times faced by the IT-BPO industry in India.
Tail accounts refer to small clients which bring in around a few hundred thousand dollars in revenues per year. The IT majors consider severing the tail accounts from their services would help them manage the cost of servicing accounts better. This is also a move to concentrate their sales towards the customers with the ability to spend more.
Many of the big companies such as Mindtree [stock quote], iGate, Wipro [stock quote] and Geometric [stock quote] are even open about their decision to cut the tails even as others like HCL Technologies and Infosys are reluctant to be blatant about discussing it.
Wipro knocks off 40 clients
- The third largest software exporter in India is knocking off clients which it does not consider as having value proposition for the company.
- The decision was taken so as to improve the quality of revenue generation.
- Wipro has slashed around 40 clients in the last few quarters bringing down its current count of tail accounts to 45. In the process, the company has foregone around $8 million (Rs. 45 crore) in revenues.
iGate declines renewal of contracts with tail accounts
- The California-based company did not renew contracts with around 70 small clients which did not contribute to the margins or did not fit well with the company’s strategy.
- This margin-centric company aims at focusing on fewer clients with deeper relationships which will help deliver more value in the services it offers.
- Last year, the active client-base of the company decreased from 344 to 293.
Geometric ‘cuts out the long tail’
- The Mumbai-based IT service provider Geometric has also decided to cut down the tail accounts. It considers this process a part of the growth initiative of the company.
- The IT services export of Geometric had a growth of 16 % in the last year. However, this year until March, it is poised for only 11% financial growth. The company hopes to remedy it to some extend by letting go of some smaller clients and thus reducing the servicing costs and improving quality.
MindTree rationalizes its tail of customers
- MIndTree hopes to expand its client base by including larger clients at the same time rationalizing its already existent customer base to weed out some of the tail accounts.
- The company says that it will be actively carrying on the process of managing its long customer tail.
- The Bangalore-based company has exercised its focus on gaining contracts in larger technology services at the same time focusing on in-depth specialization of its verticals.
This strategic move by the Indian IT companies could not have come at a worse time as the IT-BPO industry in India has been facing a slow growth since the customers in recession-hit Europe as well as the slowly recovering U.S. have limited their spending on technology. The firms are also being pressurized by the increasing wages as well as the heavy expenses incurred in relation to visas.
For large companies like Wipro, Tata Consultancy Services and Infosys, the tail-trimming would bring in around 150-200 basis points extra in the operating-profit level.
In short, tail trimming would help the major IT companies sever ties with those clients which do not contribute to margins or increase their businesses. It helps the sales team pay exclusive attention to the key accounts, resulting in the generation of more business out of them. Tail trimming is expected to bring down the cost of the services as well as increase the margins.
Source: Economic Times