ER&D companies bag big digital transformation deals

Bengaluru: Engineering and embedded software services companies, popularly known as ER&D firms, are winning large multi-year digital transformation deals, including some snatched from larger IT services firms.

L&T Technology Services (LTTS) has secured over 10 multi-million dollar contracts this year (each about $5 million on an average) across sectors including automotive, aerospace, and oil and gas. US-based Globallogic’s India business has won three multi-year digital transformation deals that were earlier with larger IT firms.

“In my conversation with clients, digitalisation takes center stage,” said Keshab Panda, chief executive of LTTS that last week won a $40 million digital content management deal spread over five years. “While earlier the talks were about developing proof of concepts for the market, now the discussions are around rolling out mature solutions on a mass scale.”


Globallogic, privately held by Partners Group and the Canadian Pension Plan Investment Board, said such deals are focused on re-aligning clients’ businesses digitally and not just on optimizing a website or an app.

“In the last six months, (we have) have inherited or taken over three multiyear multi-10s of millions (of dollars worth of) digital transformation programmes,” Sumit Sood, managing director, India, at Globallogic, told ET in an interview.

As more businesses globally transition their customer service offerings using digital technologies, business dynamics for IT services firms have been disrupted because of demand for more outcome-based projects.

This means billing clients based on usage by their customers (outcome based), as opposed to traditional onetime billing opportunities (fixed price), which has limited the scope for large contracts for IT services firms— a factor that has benefitted the ER&D sector.

The domestic ER&D sector, which includes the engineering services wings of traditional software service exporters, is pegged at nearly $34 billion, or one-fifth of the $167 billion IT business process management market, as per industry estimates.

Analysts estimate the global size of ER&D business to be worth $90 billion. Despite the growing business, ER&D deals remain relatively small.

The domestic ER&D sector considers $10 million annual digital contracts as large ones.