Friday, December 4, 2009

Three IT firms bag $600 mn WalMart deal

Walmart has selected three IT vendors in India — Infosys Technologies, Cognizant Technology Solutions and UST Global — for multi-year contracts worth over $600 million (around Rs 2,750 crore).

The amount is roughly equivalent to the value of goods — textiles, handicrafts and other products — that the world's largest retailer sources from India every year.

This development is expected to boost the IT outsourcing landscape in India, given that Walmart typically prefers to develop its retail applications in-house. Walmart gradually started buying packaged retail applications from leading software vendors such as Oracle, HP and SAP only towards the end of 2007. It had, however, given Infosys and Cognizant pilot projects about five months ago.

Initially, the three vendors are expected to earn Rs 250 crore to Rs 300 crore, each, annually. The figure is set to grow as Walmart increases outsourcing of work from its main merchandising division. Infosys and Cognizant are expected to garner a larger share of the pie between them.

“What is more important is that these three vendors have now got a ticket to be in the club of Walmart's list of preferred vendors which will help them in growing this account in the long-run,” said a source close to the development.

According to the contract, Infosys and Cognizant will be responsible for application development and support, while UST Global will be responsible for specific testing of these applications.

Asked about the deal, Infosys and Cognizant declined to comment. “As a policy, we do not comment on speculation in the marketplace,” spokespeople from both companies said. A UST Global spokesperson in India said the company does not comment on any client specific information as “we have non-disclosure agreements with most of our clients”.

UST Global is part of the $6 billion US-based business conglomerate Comcraft Group, with a major presence in India.

Walmart's media relations director John Simley replying to an e-mailed query said: “We have a large and growing business and productive relationship with many Indian companies. We do not comment on speculations about the nature of any business relationship.”

Walmart, the largest private employer and grocery retailer in the US with revenues of $404 billion (2009), selected the vendors after a competitive bidding process in which most Indian IT services companies participated, except TCS, India’s largest IT services firm.

TCS failed to qualify for the bid because it has an exclusive partnership with Target, another American retailer, who is into direct competition with Walmart. Among the bidding companies, Walmart shortlisted six contenders of which three were finalised based on their level of competency in various processes.

Unlike other retailers, Walmart does not want to open its own captive centre in India, even though the company has established a huge sourcing office in Bangalore sometime back.

Some of the world’s leading retailers like Tesco, Target and Supervalu have their own software development centres in India. Tesco’s Hindustan Service Centre which went live in May 2004, employs close to 3,000 people. In 2006, Supervalu which is the third-largest grocery retail chain in the US, also set up a captive development centre in India for new applications development, technical operations and testing of applications.


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