Tata Consultancy Services and International Business Machines have emerged as frontrunners in the race to win Swedish truckmaker AB Volvo’s IT outsourcing contract, worth about $500 million, according to people familiar with the matter.
As part of the deal, which is expected to stretch over three to five years, Volvo will outsource its IT business unit, they said, adding that HP and Infosys are among the other firms being evaluated. Volvo may give out business worth at least $100 million a year as part of this deal, they said, requesting anonymity.
“The deal should be finalised within a month—at the moment Volvo is facing a lot of heat to cut costs and any business which is non-core and not making money for the company is under the pump right now,” one of the persons quoted earlier said. “Volvo IT is more of a cost centre for the company, and for them it makes sense to hand it out to professional outsourcing firms.”
Volvo confirmed that the company is evaluating external service providers for the contract, but declined to give the names of vendors being evaluated. Volvo said the initiative would help reduce costs.
“For the external business and the operation of our IT infrastructure we have initiated a process to find an external partner. Our assessment is that this will be more cost-effective for the group.
We will keep application development and maintenance of business critical systems and accelerate efficiency improvements in this part of the operation,” a spokeswoman for Volvo said in an email response to ET’s query.
“This is an ongoing process and we do not intend to leave any comments until we have finalised an agreement with an external partner,” she added. An email query sent to IBM in this regard remained unanswered till as of press time. TCS declined to comment.
Volvo’s decision to outsource comes at a time when the company is facing enormous pressure from shareholders to boost profit margins. The Swedish firm’s move to overhaul in the face of stiff competition from rivals such as Scania AB saw the exit of Olof Persson as CEO earlier this year.