Thursday, May 31, 2007

Project watch - Indian outsourcing


Despite its initial success, there are concerns among India's software and services companies about whether the country can maintain its dominant outsourcing position.

To most outside observers, the Indian IT industry is in rude health. Recent figures from India's National Association of Software and Services Companies (Nasscom) suggest the sector is growing at close to 30% per year, driven by software and services exports that are expected to have topped $31bn in the 12 months to the end of March 2007.

This theme was summarised by the forum's final speaker Lakshmi Narayanan, vice-chairman of Nasscom and CEO and president of Cognizant Technology Solutions: "The Indian IT industry's position is by no means dominant globally. Not everything is hunky-dory. The underlying health of the industry is not so good."

Narayanan's comments served as a reminder that India's rapid growth is built on an infrastructure that often struggles to cope with the demands of high-tech industry. He also alluded to widespread fears that the country's education system may not be able to keep up with rising demand for highly-qualified employees.

Yet India is unique among its competitors as it currently has a surplus of people available for work. "We're not concerned about demographics," says Neeraj Gupta, executive VP at second-tier Indian vendor Patni Computer Systems, "but we are concerned about the quality of personnel, the level of investment in training and the ability to move staff up the training ladder."

Many of the leading names in the Indian IT sector are already doing just that, embracing the concept of corporate social responsibility (CSR). At its most simple level, this requires commercial organisations to make decisions based not only on financial factors such as profit and return on investment, but also to consider the social and environmental repercussions of their actions.

In Andhra Pradesh, for example, the state's IT and communications department has established a partnership to install a broadband network across the entire region. The total cost of the project, which is designed to give Hyderabad the best connectivity in India, is estimated to be about $100m.

According to the department's special secretary to the government, M. Gopi Krishna, the state authorities are also taking great care to ensure that revenue from IT goes to where it is needed, with a particular focus on rural areas.

Local governments are prepared to go out of their way to accommodate the needs of the IT industry, as the benefits it brings with it are just too great to pass up. In Andhra Pradesh, it is estimated that IT has created 165,000 jobs in the last five years. The rapidly growing needs of the market also mean that investment, while initially concentrated in so-called tier-one cities, will gradually flow into tier-two and tier-three cities, leading to greater levels of development in these locations. Already, the government of Andhra Pradesh is touting Vishakhapatnam, Vijayawada, Tirupati, Kakinada and Warangal as up-and-coming offshore sourcing locations.

Far from being an opportunity for back-slapping and self-congratulation, this year's Nasscom conference revealed some of the IT sector's fears for its future. These are focused on the ability of India's infrastructure, from transport to communications to education, to cope with the demands of supporting such a rapidly expanding industry. While these concerns are well-founded, the fact remains that India's IT industry is growing by almost 30% a year, impressive by any standard, and some commentators have forecast that this performance will continue well into the next decade.

Outsourcing Your Health


With more than 45 million U.S. citizens lacking health insurance and no end in sight to the rise of health care costs, Americans are increasingly turning to places like MedRetreat to help them outsource their health care to hospitals in India, Thailand, Turkey and Singapore. It's estimated that 150,000 foreigners sought treatment in India alone in 2004, and that number is growing by 15% a year, according to the international independent consulting firm Oxford Analytica.

Medical tourism agencies are expecting this year to be big, as word spreads and the insurance industry warms to the idea of offering low-cost overseas procedures as options in employers' benefits packages.

The Illinois-based MedRetreat, which served over 350 clients in 2006 and expects that number to double this year, aims to offer services to self-insured companies for procedures over $6,000. It's also negotiating with small insurance companies to offer packages through employers' health plans to people for a handful of procedures, such as in orthopedics, says Patrick Marsek, MedRetreat's managing director and co-founder.

GlobalChoice Healthcare, based in New Mexico, doesn't offer sightseeing assistance or even use the term medical tourism, instead calling itself a medical travel company. It already has one insurance company committed and expects more to follow. The company wants to become the "Expedia" of health care, letting people decide where to be treated based on cost and location, says CEO and founder Ken Erickson. For every million people in a health maintenance organization, Erickson says GlobalChoice's services could represent $75 million a year in savings.

It's hard to estimate how many Americans are outsourcing their health care and what impact it's having on the country's health care system. National health organizations say hospital administrators are aware of the trend, but aren't noticing drops in demand for certain procedures. Pat Schoeni, executive director of the National Coalition on Health Care, says medical tourism likely appeals to a particular group--those who can still pay thousands for a procedure but can't afford insurance.

"Are hospitals worried that millions of patients are going to be going somewhere else? No," says Rick Wade, senior vice president for communication for the American Hospital Association. "I think it disturbs them to see that it's come to this in this country."

Milstein predicts off-shore competition for nonurgent surgeries, such as major joint replacement and heart procedures, is going to start affecting U.S. prices. In some places, it's already happening. GlobalChoice Healthcare is teaming up with Rapid City, South Dakota-based Black Hills Surgery Center, which plans to offer knee and hip replacements for under $20,000 each, Erickson says. Elsewhere in the U.S., the operation can cost more than twice that."They said, 'We want to compete,' " Erickson says of the center.

Of course, medical tourism is a two-way street. Foreigners have long gone out of their way to come to the U.S. for the best medical care, and despite an increase in difficulty obtaining visas post Sept. 11, 2001, they continue to do so. For instance, between 2002 and 2005, the Cleveland Clinic had double-digit growth in the number of foreign patients it treated.

But for the uninsured, who often can't afford care here, outsourcing is a growing option. Just ask Ward Styner. "This reflects the fact that Americans' health care costs per person are twice what they are in any country they're competing against," Milstein says. "And there's not a lot of evidence that they're getting more health care as a result."

Wednesday, May 30, 2007

Outsourcing Versus Immigration


Outsourcing is not new, but its globalization is growing geometrically. In its first manifestation, it had been essentially a business strategy to lower the cost of labor; eventually, it became a way to move entire operations off-shore.

The nature of outsourcing has changed, and while cost is still central, it has now taken on added strategic needs--reliability, just-in-time performance, consistency and high quality. Another factor, security, has recently been added as a prime ingredient in the selection of an outsourcing partner.

As a concept, outsourcing is really little more than the reversal of an old-time process, as Tom Koulopoulos, author of Smartsourcing and a leading authority on the practice, points out. Whereas once workers moved to where work was, "now work moves to where the workers are," Koulopoulos says. Certainly, there are still low-end, unskilled jobs that cannot move, and these tasks are the ones that immigrants still arrive to fill. Outsourcing and immigration remain an economic mirror image of each other.

According to Sue Welch, CEO and founder of Tradestone and an expert on international trade, U.S. companies alone now outsource $4 trillion each year, and that figure is growing at a rate between 15% and 20% annually. Outsourcing is no longer a modest strategy but a central component of business practices. Moreover, the need to outsource is no longer confined to the United States or, indeed, to Western developed countries. Nations like India that benefited enormously as outsourcing destinations are suddenly themselves now becoming outsourcers.

Outsourcing came into its own as back-office work was sent to places like Ireland with its highly educated and English-speaking population. Call centers went off shore. Ireland's growing prosperity--and wage levels--dampened this process in time, and eventually, this work migrating further afield to India where, thanks to its British colonial history, English is a second language. But the 600-pound outsourcing gorilla of today is China, with its ever-increasing share of manufacturing world-class goods through outsourcing arrangements with the likes of Apple (nasdaq: AAPL - news - people ), Hewlett-Packard (nyse: HPQ - news - people ) and IBM (nyse: IBM - news - people ).

The shift in outsourcing is clearly away from simple manufacturing tasks to leading-edge computer hardware, software technology and programming business. The shift has made countries like India prime destinations for outsourcing. At the same time, however, entrepreneurs in India itself have begun seeking other, even cheaper, locations to outsource some of their jobs and processes.

The flip side for corporate leaders is the challenge of dealing with the less than adequate physical, electronic, industrial and communications infrastructure of many developing nations, which often remain primitive yet are winning vast outsourcing contracts.

Wipro, Airtel, BoI grab 'Oscars of Outsourcing'


India's prowess in the BPO space continues to win accolades at the global arena with three Indian companies -- Wipro, Bharti Airtel and Bank of India -- bagging The Outsourcing Excellence Awards, dubbed as 'Oscars of Outsourcing'.

The awards, presented by the online community Outsourcing Center, are given for the world's best outsourcing arrangements.

Wipro-Nortel Networks, Bank of India-Hewlett Packard and Bharti Airtel-Nortel Networks combine are among the nine winners for this year, US-based consultancy firm Everest Group said in a statement today.

The Everest Group and US-based business magazine Forbes are sponsors of the awards, which would be presented in New York in August.

While Wipro-Nortel have been awarded the "Best Offshore" award for their 15-year old partnership, BoI-HP won the 'Best IT Infrastructure' award for implementing a core banking solution a year ahead of the schedule and Bharti-Nortel combine have been recognised for as the "Best First Steps" award for best practices in outsourcing, the statement said.

"In addition to the fact that three of the nine winners in 2007 were Indian companies, a large number of the US-based service providers this year are delivering services from offshore locations...Three-fourths of the nominated offshore services were provisioned from India," Everest Group country-head (India) Gaurav Gupta said in the statement.

Tuesday, May 29, 2007

India Takes a Step Further with Outsourcing

India is no longer just a hub for offshore outsourcing for Information technology and other Industries. It has now stepped up a rung on the ladder, to become the destination for graduate students from top business schools in the US, France and Singapore, making their way to the Indian subcontinent to fill internship slots, which are apparently much hankered after. And the point to note is that most of these companies, attracting a slew of foreign students, are mostly India's biggest outsourcing companies.

NASSCOM is on its toes, keeping busy with tracking the innumerable interns pouring into India for educational benefits and opportunities. These interns not only get a first-hand view of globalization, but also achieve a cultural fulfillment. Of all the outsourcing hosts, its India and not China that attracts more and more interns because China poses the problem of language barrier, a major contributor to the cutting down of competition posed by China to India's claim of being the leader in the Outsourcing Industry.

Although, this is a huge opportunity for students from overseas, they must however come in readiness to cope with a work environment, quite different from the traditional Wall Street internship areas. Sadly, the infrastructure with state of the art office complexes, standing alongside unsound dwellings has fluctuating power supply throughout the day. The other discomforts that a foreign student may have to face before becoming accustomed to a day in an Indian metropolitan are, the lack of mass transport system, which is almost non-existent. Shopping for even the most basic necessities means a visit to the mall, which could be frustrating and eat up hours of your time. However, the chaos outside is not to be taken as the true picture of the working inside the offices, where, in sharp contrast, there is order, discipline, professionalism, sophistication and hard work.

Thus, India has taken outsourcing a step further, by building in internship for foreign students as a means of grooming the bright young minds, who might one day actually work in India.

Does private equity mean a boon for offshore outsourcing?

Source: Zdnet

Patni Computer Systems, an Indian outsourcing company, plans to aim its services at private equity firms in a move that makes a lot of sense given the acquisition barrage in the U.S.

TPG and Goldman Sachs bought Alltel for $25 billion. Last week Cerberus Capital Management bought Chrysler for $7.4 billion and Bausch & Lomb accepted a $3.6 billion deal from Warburg Pincus. Pick a day and there’s a company going private.

Patni, which is on target to post annual revenue of $600 million to $700 million, is hoping to capitalize on the private equity craze. And why not? These private equity titans have to integrate information technology or start delivering services as they acquire companies. The issue: Private equity firms are more interested in their portfolios and leveraging operations than technology infrastructure. Bottom line: Private equity firms may be more likely to outsource technology operations.

Last week, Patni formed a consulting services practice within its manufacturing unit to handle items like due diligence and post acquisition integration. Watermill Group, a private equity firm, used Patni when it acquired Latrobe Specialty Steel.

Watermill says it will hand over Latrobe’s entire IT infrastructure to Patni eventually. “Moving into consulting is a major move for us,” says Russ Boekenkroeger, executive vice president of Patni’s U.S. operations. Patni’s move into consulting is one way Indian outsourcing firms are looking to move up the technology food chain.

Sanjiv Bhatia, vice president of Patni’s consulting services practice, says the move toward catering to private equity firms is a natural step for a company that traditionally deals with manufacturing customers. “When private equity firms make acquisitions they need a lot of the services we provide to manufacturing customers,” says Bhatia. “Private equity lacks skill set to provide the services.”

Patni plans on getting involved with private equity customers on many fronts, says Bhatia. If a firm buys another company, say a business that is “carved out” of a larger parent and sold, Patni will look at an acquisition and outline what needs to be done to move operations. These day-to-day services include human resources, purchasing and information technology, including data centers and network infrastructure. Patni will also provide technology infrastructure if needed either on a permanent or temporary basis. Another possibility: Installing a CIO at an acquired company.

If Patni’s bet on private equity is correct, it may find itself a lot of new clients. Another possibility: The private equity boom may be a trigger to move more work offshore. Patni appears to be ahead of the curve, but other offshore providers are likely to be fast followers when it comes to targeting private equity firms.

China lags far behind India in BPO sector


China's push to become an alternate Business Process Outsourcing (BPO) hub for MNCs tackling soaring wages and high attrition rate in India remains a distant dream as its offshore market is developing slower than expected, a study says.

Despite significant government support and huge level of visibility on the global arena, China's offshore market has not taken off as expected and still has a long way to become a potential alternative to India, technology research firm Forrester said in a report.

Multinational firms, considering China as a "quick-fix" solution to deal with rising costs and high attrition of employees in other offshore locations like India, would be sorely disappointed by the country's slowing offshore momentum, the report said.

"When we first looked at China's offshore and global delivery model nearly two years ago, the country was widely viewed as the key challenger to India for offshore supremacy. However, our latest research shows that to date, the market has not taken off as expected," Forrester's V-P John McCarthy has said.

McCarthy, who had predicted in 2002 that over three million BPO jobs in the US would go offshore, added that firms with large bases in India should consider other geographies when addressing the risk mitigation issue.

Even countries like the Philippines, Mexico and Brazil could prove to be better alternatives than China for diversifying offshore exposure, McCarthy said.

Noting that China's percentage of overall offshore resources has dropped and other countries were growing at a faster pace, Forrester said the country needs to refocus its offshore efforts.

Instead of trying to compete in areas like application development and management, where India clearly dominates, China should encourage its local firms to focus on other areas like testing, data management and product development services.

Monday, May 28, 2007

Wage hikes, quality top offshore outsourcing concerns


While recent press reports have highlighted rising labor costs in India as one of the biggest hindrances to global outsourcing, IT services and business process outsourcing (BPO) provider Syntel Inc. says this issue isn't as big of a roadblock as it seems.

Troy, Mich.-based Syntel recently surveyed 325 Fortune 1000 IT executives of global companies to gauge their views on top threats to outsourcing. In an online poll, participants answered the question, "What is the single greatest threat to the global outsourcing trend in 2007?" by selecting from one of five responses: wage inflation in India; quality concerns; possible outsourcing legislation; perceived security risks; and resistance from middle management. While the questions were not specifically focused on India, Jonathan James, Syntel's vice president of marketing and investor relations, said responses referred mostly to India where the most overseas IT shops are currently set up, and did not take into account other outsourcing destinations such as Mexico, Russia or China.

Wage inflation rates in India -- even at 15 per cent, are "still manageable," according to James. The goals of offshore outsourcing have also evolved. "As the industry matures, people are moving beyond that to speed-to-market because of time zone differences, quality improvements and access to talent."

Organizations outsourcing their IT work are "well aware that (wage inflation) is an industry-wide challenge and something they need to share the burden on," James added. While an IT vendor may not go as far as to expect that the client pick up 100 per cent of the increased costs, pricing may be adjusted in contracts down the road to offset some of those costs. "Clients understand that as a logical discussion -- it's a fact of life," said James, adding that this encourages clients to examine which projects make the most sense to be delivered globally, and which are best left in-house.

Next on the list was a concern over quality: 27 per cent of respondents cited this as a top hindrance to outsourcing. In a poll Syntel conducted in October 2006, 30 per cent of respondents cited quality as a top concern. The lessening concerns over quality are a "natural outgrowth of the maturation of the industry," James said. In the early days, most of the outsourced work was coding, but today it includes complex development projects, back-office processes and delivery of solutions. Most organizations in India are at level five of the Software Engineering Institute's Capability Maturity Model (CMM), James noted. Smart IT firms will continue to enhance their educational training and skills development practices to keep driving quality higher.

In addition, 10 per cent of respondents cited security risks as a major hindrance to outsourcing. Security is are lower on the list because from the beginning, outsourcing companies have had to protect data in multiple locations and have evolved on a par with U.S. companies, and in some cases beyond, James said.

Lowest on the list was middle management resistance, which nine per cent of respondents said was still a roadblock to outsourcing. Internal IT departments are now being called upon to help select what should be outsourced and what should stay in-house, opening up the opportunity for IT staff to use their skills in more strategic ways.

ThinkHR Adds to Line-up of HR Outsourcing Solutions


ThinkHR, a provider of HR outsourcing, HR consulting and HR recruiting services to employers in the San Francisco Bay Area, has officially launched HR Assist, the latest solution in the ThinkHR line-up of outsourcing solutions. HR Assist is targeted at companies who already have their day-to-day HR needs met and only occasionally need extra support. Unlike other low cost outsourcing services that provide only remote access, this new, affordable solution combines periodic onsite assistance with constant telephone and email support - plus access to ThinkHR's proprietary HR Tools.

HR Assist is targeted at companies who already have their day-to-day HR needs met and only occasionally need extra support. Unlike other low cost outsourcing services that provide only remote access, this new, affordable solution combines periodic onsite assistance with constant telephone and email support - plus access to ThinkHR's proprietary HR Tools.

As with all of ThinkHR's flexible outsourcing solutions, including TeamBuilder and Total HR Outsourcing, HR Assist customers choose what service level they need and decide for which areas of HR they need the most help.

ThinkHR has been helping San Francisco Bay Area employers with their HR needs since 2004. They have a proven track record successfully delivering lower cost, higher quality HR solutions to the small and medium business community by providing strategic, tactical, and administrative support through an outsourced HR team, and supporting them with standardized procedures and technology.

Saturday, May 26, 2007

Outsourcing success faces new complexity for supply chain network design


Outsourcing is a potential source of differentiation for any company. Making it a positive source of differentiation depends on how it’s managed, says Ray Homan, vice president of IBU High Technology for SAP labs, LLC, Palo Alto, Calif.. Homan delivered his message in a keynote speech that opened this week’s DC Expo, held at Chicago’s Navy Pier. The problem, according to Homan, is outsourcing is more complex than many companies expect it to be.

“Most enterprises are unaware of all the stakeholders [in the decision],” he said. “In terms of enterprise risk and the ability to deliver on the revenue commitments CFOs made to the markets, this is where things begin to break down. Mastery of fill rates in this environment is where outsourcing starts to rear its head. The cost to manage an outsourced operation are far higher than most companies realize. Often the cost of doing business in this mode is lost customers—or the loss of a direct relationship with a customer if the process is not mastered.”

The supply chain network design is the key strategic element in an outsourcing scenario, and logistics managers hold the key to making things work. It’s a matter of supply network collaboration. Smart Modular Technologies (SMT), a spinoff of Selectron,assembles memory modules. Management knew the only way for SMT to win business in its market was to be able to provide service with cost guaranteed delivery dates. These are aspects of perfect order fill and that had to be their differentiation.

SMT had two major OEM customers. Failure to serve one adequately could mean catastrophe. Their strategy was to become the orchestrator of all memory modules for those two customers. They disintermediated all of their competitors by orchestrating the supply from competitors as well as from their own plant.

That was a major achievement for them, considering how complex supply chains are in the high tech world. Homan cited an AMR research study indicating that high tech is the worst performing industry when it comes to perfect order fill rate. It requires business models in that industry to morph constantly as relationships multiply.

Customers must determine if they’re willing to extend their pipeline to meet this extended service level. What helps customers justify doing business with such suppliers is the availability of information. Homan gave the example of a telecom equipment manufacturer that switched subcontractors because the new one was easier to do business with and would provide them with higher quality information.

The conclusion for companies either outsourcing or offering outsourcing services is, keep your eye on the changing stakeholders. They’re global. How many different countries have different requirements that dictate how you do business and how you report on your business? As your services change, the stakeholders in your supply network will change. Perfect order fill rate will take on new complexity.

“You can’t achieve perfect order fill just by increasing inventory,” Homan concluded. “You now need to improve that under a whole set of constraints—financial, legal and regulatory. Most companies don’t even have visibility to what they have in their own supply base.”

An outsourcing hub for generics


Chennai-based Shasun Chemicals and Drugs is the biggest bulk and intermediaries manufacturer of Ibuprofen (anti inflammatory drug). As a part of its transformation initiative, the company is reducing its dependence on Ibuprofen and has leveraged its relationships with the innovator companies to strengthen its Contract Research and Manufacturing Services (CRAMS) segment. Vimal Kumar, whole time director Shasun Chemicals talk about company’s strategic plans.

Can India emerge as an outsourcing hub for global pharma industry?

India is strongly positioned to be the outsourcing hub for the global pharma industry for those products that are nearing the end of their patent life or those that have already turned generic. The industry in India is equipped with the right kind of quality manpower as well as equipment and facilities and is also well positioned in terms of capabilities and capacities to handle any process technology challenge. One advantage offered by India in CRAMS was the cost of hiring chemists at one-fifth of what companies pay abroad. The innovator companies are increasingly looking at the outsourcing ($10 billion a year opportunity), allowing them to focus on areas like basic research and marketing. India’s share, at present, is less than 2%.

How has Rhodia’s custom synthesis business aided the company to ramp up its CRAMS?

Rhodia Pharma Solutions, UK was acquired by Shasun through our subsidiary Shasun Pharma Solutions Ltd. (SPSL) in March, 2006. SPSL is into providing research and manufacturing services to the pharmaceutical industry.

Shasun is primarily in API business.How is it now moving up the value-chain?

We have now built up the capability of producing formulated products in the recent past. The formulation facility has already undergone successful MHRA and US FDA audits. Partners of Shasun have filed three ANDAs so far and are expected to file another eight to nine this current financial year. The formulation business would start contributing revenue from this year and is expected to ramp up to Rs 100 crore by FY 2010. With the acquisition of Rhodia, Shasun is today owns 62 patents around three major technologies viz, HKR, ABF and Trifluoromethylation. The access to these has facilitated us to be more of technology oriented player than pure manufacturing player.80% of Shasun’s revenue comes from three products, viz., Ibuprofen, Ranitidine and Nizatidine.

Friday, May 25, 2007

One in Three Investment Management Firms Will Increase Outsourcing to Third Party Service Providers


As the investment management industry uses more complex financial instruments and faces increasing pressure to improve performance, cut costs and comply with regulatory requirements, more firms are turning to third-party service providers for administrative, back- and middle-office functions. Approximately one in three (31 percent) investment management firms said they plan to increase their outsourcing arrangements with third-party providers over the next two years, according to a survey of more than 150 finance executives from mutual funds, hedge funds and other asset management firms, who attended PricewaterhouseCoopers Investment Management Industry forums in Boston and New York over the past week.

Forty percent of Investment Management finance executives said their primary reason to expand outsourcing is so that the firm can focus on core competencies. One in three (31%) outsource as a way to improve the quality of functions their finance teams don't have adequate time or resources to handle on their own. Only 29 percent outsource primarily as a way to cut costs.

Outsourcing is one of ten top issues the investment management industry must grapple with in the year ahead, which are driving increased focus on internal controls, including oversight of third-party service arrangements, according to PricewaterhouseCoopers. The firm has issued a report entitled, "Looking Ahead: Strengthening the Structural Foundation of the U.S. Investment Management Industry," which calls on the industry to strengthen internal controls in response to increasing challenges.

"During this time of change and uncertainty, it is crucial for the investment management industry to maintain investor confidence," said Benjamin. "By managing potential conflicts, properly overseeing service providers and addressing the risks of complex investment instruments, the industry can meet its operational challenges while preserving investors' trust. Deeds, not words, will ensure investors' continued faith in the U.S. investment management industry."

"Looking Ahead: Strengthening the Structural Foundation of the U.S. Investment Management Industry" lays out the challenges and highest pressure issues facing the industry. The report also addresses in greater detail five areas of internal control for mutual funds to strengthen their structural foundation, identifies the ramifications for the industry and suggests best practices to address industry challenges.

Office Politics: Outsourcing not as easy as it seems

Source: Novascotiabusinessjournal

More and more companies are finding new ways to cut costs through outsourcing different facets of their business, but there is a steep learning curve to venturing into what is often unknown territory, experts say. A study released by the Centre for Outsourcing Research and Education (CORE) earlier this year reported that while companies reported a 75- to 80-per-cent satisfaction rate with the more traditional forms of outsourcing, such as IT applications development and management, less than 50% of those surveyed said they were satisfied with outsourcing entire business processes (BPO).

"It becomes more complicated when you outsource a whole function as opposed to the technology or a small piece of the business. If you outsource a very discreet activity that is normally straightforward, there is usually no problem," said president of CORE, John Simke.

Jim Mikell, a consultant at the Everest Group, said there are several areas that are being explored for new outsourcing opportunities. Everest produces monthly online magazines Outsourcing Journal and BPO Outsourcing Journal. "The most mature areas have been IT, application development, call centres and technology research and development. But there are a set of emerging areas such as HR, finance and accounting and procurement that are also now being explored," he said. According to Mikell, contracting out specialized core processes, such as claims processing in the insurance industry or clinical research in the life sciences sector, are also becoming popular.

Mikell said other new areas for outsourcing are supply chain management, which includes inventory logistics and transportation management. He also cited management care beyond call centres and help desks. For example, utility industries outsourcing meter reading and customer claims. Although these outsourcing areas might give the company the edge they need over the competition, these pioneers also face the biggest challenges when it comes to getting it right.

Marissa Lepore of the Canadian Mortgage and Housing Corporation (CMHC) recalled the adjustment when her organization decided to outsource all their printing, warehousing and material management services, mail, shipping and receiving services back in 1998. "We are in the mortgage loan and service business and we have a good deal of information products that we send to clients. We looked at what core business was and what was not, and if it was not, could we and should we outsource it?" she said.

Mikell said that ironing out expectations versus reality when it comes to new forms of outsourcing is critical to a successful relationship. "There is definitely an early adoption period syndrome. For any outsourcing market there has been a break-in period for the suppliers to get a better understanding of how to manage these processes," he said.

Reuters Outsources to India to Cover US Financial News

Outsourcing of media and publishing is one of the most recent events in the Outsourcing industry, bringing about an unprecedented revolution in the global media and publishing business. Preceding Reuter’s decision to outsource its work to India, Time Warner's magazine Business 2.0, New York Times, and Technology news portal CNET have experimented with outsourcing their research reports, news alerts, editing work and are looking to initiate pilot programs to get news pages designed in India.

The aim again is cost-cutting and to provide up-to date news, keeping the reports, bulletins, and broadcasts, fresh throughout the day. Reuters has acquired a base in Bangalore (a Reuters Bureau, like any other) with 60 people who are to carry out their basic data analysis, and compile tables, with over 300 non-editorial people monitoring market data. In addition, a polling unit has also been set up to make calls for collecting data, starting with Australian economic polling. The stories, however, will be written in the original centre.

David Schlesinger, global managing editor, Reuters, corroborates that the driving force behind outsourcing their work to India is to avail of the huge cost advantage. According to Schlesinger, the move meant that Reuters could broaden their coverage of US companies without incurring crippling costs. Also, they can use their New York journalists for more interesting stories, and to conduct interviews with senior company officials. Reuters is keen to benefit from the advance in technology in India, which is apt for conducting editorial and publishing work, and looks forward to a flourishing outsourcing publishing business from India.

The journalists employed by Reuters, Bangalore, cover US financial news in night shifts. Company news is reported live as it happens on the New York Stock Exchange. These journalists get an opportunity to work for the world's biggest news agency, Reuters, for much less than their counterparts in the US. With this move, Reuters implements its massive cost-cutting program. The journalism operation in Bangalore could soon be significantly expanded, said Schlesinger.

So, while the News industry never tires of slamming the outsourcing industry in general, it seems to have discovered the benefits of Outsourcing for itself.

Wednesday, May 23, 2007

Outsourcing network management

Source: Expresscomputeronline

To reduce operational expenditure, Indian businesses have started outsourcing their network management needs to network management service providers.

With IT networks becoming more complex by the day, organisations have started realising the need for professional network management. Organisations are increasingly looking at network management as a sub-set of enterprise management systems. This enables companies to deploy and manage networks using policies and move towards ‘on-demand computing’. Organisations are considering remote management, through the Internet or though an external managed service provider, to manage complex network infrastructure.

With network infrastructure being expected to support multiple applications, business users are demanding consistent and predictable response time for critical applications. Additionally organisations have started realising that their bandwidth requirement during peak periods of the month and year is significantly different from that of non-peak periods. Recent times have seen many new entrants while existing players have expanded their portfolio of products and services.”

Outsourcing network management

Network management outsourcing is growing rapidly in India and there are many organisations willing to completely outsource to a service provider. Network management includes different functions such as planning the design of the network, maintaining the network hardware and software, integrating new software and hardware, server upgrades to stay abreast with latest developments, supervising the resources, supporting the users, defending the network from hackers and troubleshooting problems.

The market is open to outsourcing network monitoring by means of facility management (FM). Organisations today face challenges of attrition, consistency in service delivery and hence remote infrastructure management services from service providers gain prominence using as they do industry standard tools and customised portals. Aldrin D’Souza, county manager, Tivoli, IBM Software Group, India says, “Network management outsourcing has matured.

Revolving around FCAPS

As networks became more complex with numerous applications and services running on them, Indian businesses have started outsourcing their network management needs to network management service providers. Additionally businesses have started consolidating their IT infrastructure to reduce the operational cost of managing networks and they need a solution that can help them fine tune their infrastructure so that it can be monitored 365x24x7 with 99.99 percent availability. Nithin says, “Primarily businesses are looking at FCAPS (fault, configuration, accounting, performance and security management). The whole concept of network management revolves round three concepts. They are the network management foundation which includes software as well as hardware, security and compliance.

FCAPS, being an ISO framework for network management, gives vendors and system integrators a solid chassis to build a solution upon. However, as mentioned above, this framework needs to gel with a larger framework for IT service management. It should be able to address the entire IT landscape consisting of applications, networks, security, data centre.

CIO’s dilemma

With the advent of multi service platforms, the various challenges that the modern day IT managers are frequently faced with are in the areas of traffic engineering and management, which now form a key part in maintaining the desired service levels. Bhattacharjee says, “It is suggested to look into outsourcing network management especially if it is not the core area of an organisation and stands to gain in the long run.

In a way, one does see cost effectiveness as a result of outsourcing network management. The biggest benefit is that an organisation can expand since it can focus on its core business. Organisations are able to grow their revenues since network management is a key element for growth.

Multiplicity driving growth

In the network, the basic plumbing your routers, switches and cabling may stay more or less the same, at least for the next few years. The way you think about and manage that plumbing changes frequently, however. Multiple branch offices have driven the need for better management tools in the networking space. D’Souza says, “Growth and complexity of leased line infrastructure necessitate good network and service management tools. Multiple users, locations and applications drive the need to have a complete view of the application infrastructure (application and database servers) and be able to monitor and manage and plan capacities based on actual usage patterns, behaviour and stability of the same.

Compliance stifles outsourcing


Increased regulatory pressures and the fear of sanctions for failure to comply are making FTSE-350 FDs reluctant to relinquish control over sensitive finance and accounting functions.

The burden of handling regulatory and compliance issues has become a major obstacle to outsourcing finance and accounting business functions, according to research among UK finance directors.

The survey of 50 FDs from UK FTSE-350 companies by LogicaCMG has found that FDs believe that increased regulation and a greater emphasis on corporate governance are the biggest barrier to outsourcing. Only 7% currently outsource any finance and accounting functions, with 68% stating that the burden of current financial regimes is holding them back.

According to the survey, more than 50% of the CFOs questioned had outsourced at least one area of their business, and a further 19% planned to use outsourcing in the near future as a means of reducing costs. But the same CFOs say that they are less likely to outsource their own finance and accounting function than they are to outsource other business areas, citing regulation and compliance as the restricting factor.

Losing control

David Vine, MD at Global Expense, agrees that the main reason FDs are reticent to outsource certain finance functions is because they are concerned about losing control. “Often ‘one-stop-shop’ outsourced service providers aren’t the best bet as control is passed to the provider.”

Mark Holland, managing partner at Baker Tilly, says “FDs are much more aware that while they might be able to outsource the work, the responsibility for how well it is done and its compliance with UK and other regulations stays with themselves. As a result, FDs are reluctant to outsource some of the more sensit ive areas of their work.”

Mutually exclusive

Paul Cartwright at Accenture agrees that “regulation is a big thing and that there is not much finance and accounting outsourcing”. But he adds that he is “not convinced that the causal relationship is that strong. I certainly do not believe that if all regulatory change stopped that there would be a flood of outsourcing. Indeed, the reverse hypothesis is more plausible.”

One consequence of increased compliance is a greater emphasis on the content and form of service level agreements, says Gordon Stuart, FD at Xansa. “Five years ago people would just routinely sign these and they were fairly boilerplate contracts. Now, both sides go through them much more thoroughly,” he says.

Tom Bangemann, vice president of The Hackett Group, says that a greater focus on contract terms has not caused a downturn in the outsourcing market. “There are no major trends or fluctuations in the market. Our research tells us that between 4% and 8% of companies have outsourced their finance function and this will double in the next two years,” he says.

The National Outsourcing Association (NOA) shares the view that the outsourcing market is picking up as FDs regain confidence about the ability of third-party suppliers to carry out work with strict adherence to these new regulations and standards and codes of best practice.

Off-shoring / Outsourcing: Indian BPO Metamorphoses From Version 1.0 To 2.0 And Now 3.0

Indian graduates no longer view business process outsourcing jobs as an easy route to making a quick buck to buy some of their favourite things, or a stop-gap till they find a job that fits their dream. Sweating all night long on a mundane outsourced job is wholly passé, a thing quite of the past. Today, India's $9-billion business process outsourcing (BPO) sector has graduated to third generation services, or BPO Version 3.0.

Given an opportunity to move up the ladder in the kind of projects being outsourced, most of the over 5,00,000 BPO staff in India, are beginning to view outsourcing as a meaningful career, thus enabling the firms they work for to get outsourced projects that command a higher billing rate.

Today, BPO 3.0 means developing structured products for investment banks, using Monte Carlo simulation or statistical tools, as they are called in common everyday usage, based patent valuation, including providing actionable legal and engineering reports for products that can be launched in multiple global markets and much, much more.

As is self-evident, BPO projects are far more complex than what the industry started out with and stood for in the recent past i.e. transcribing medical records, answering phone calls, data entry, all of which could be labelled as Version 1.0 of the BPO industry. Version 2.0 has seen BPO firms graduating and performing up the scale tasks, such as, solving problems, making decisions for processing insurance claims or increasing credit card limits.

However, that was in the past, as still in its infancy stage BPO Version 3.0, only recently incorporated over the last few months, shows a distinct change has been ushered into the BPO industry. BPO firms are no longer interested in just school or college graduates, they have begun to distinguish BPO Versions 1.0 and 2.0 from 3.0 by recruiting experts. Experts that can boast of solid 15-years of experience that allows them to ask their clients for higher billing rates.

Even as, the Indian BPO industry in its Third Avatar, sees a huge labour arbitrage still the main driver, for instance, what Indian lawyers deliver for $75 per hour would cost $500 per hour in the US and elsewhere, do what has never been attempted before. Sanjay Kamlani, Co-CEO of Pangea3, a Mumbai-based legal process outsourcing service provider stresses, the point is that the kind of work Indians are delivering was never really being done (even in the host country), since it was far too expensive for many global companies.

V. Bharadwaj, Customer’s Vice President (Global Marketing) of a Bangalore-based BPO 24/7 adds: “We are extracting value from transactions that clients make. This is the third generation of BPO.”

The first generation of India's BPO services was a 'Plain Jane' of services provided e.g. answering calls. However, in the second version, Plain Jane began to metamorphose into a person who had great potential and that included rule-based processing involving ‘lift and shift’ kind of operations. “Now, the customer has seen the India centres deliver to specifics, experienced the quality, it has begun to wire more complicated tasks. For instance, for a financial services customer we worked for four months to analyse data and predict the customers most likely to buy a product. We came up with relevant models using mathematical and co-relation modelling to create the predictive analytical model,” Bharadwaj informs.

A true reflection of how far BPO has progressed, since that is often the kind of work knowledge process outsourcing (KPO) firms claim they do. But, even here the scaling up to more complex tasks has happened only recently. For example, banks routinely look at products that offer good returns. Gurgaon-based Evalueserve is now engaging Ph.Ds in the field fo Statistics and Mathematics for delivering this type of work, claiming investment banks from the US, Japan and UK have outsourced new products development work to it.

And, this is what Evalueserve’s COO and Country Head Ashish Gupta says on the new type of work that Indian BPOs find coming their way: “We are running off-shore research centres for clients and helping them grow. For instance, in the West the sales person may just be spending 15-minutes with the client, but all the MSO (Marketing Sales and Operations) related work is executed at our office. We have built customised Monte Carlo simulation-based patent valuation techniques to deliver intellectual property related work. Such scaling up has happened only in the last few months.”

On the other hand, Pangea3 in Mumbai is doing high-end work for about 50 of its 150-clients. Kamlani of Pangea3 informs: “For an auto emissions product company we studied emission law in various countries and also did the intellectual property and technical analysis. The challenge here is that each country has different emission laws. Even within the US, the law may differ across states. In many instances such work was not being done earlier due to costs and complexities involved. Now, companies are seeking vendors around the world who can deliver such jobs.”

And so, while it has taken about 10-years for India to gain the trust of a sceptical world refusing to give up its image of a developing country, developing because of what the British Raj did to it, a country they viewed as one that perpetually stretched out a begging bowl for charitable alms, a country ravished by natural calamities, such as, famines, floods, earthquakes etc., a country many viewed in the context of snake charmers and tigers roaming the street, a country of 'Hindoo Heathens' that needed the civilising touch of being converted to Christianity, a country and a people in the first stage of BPO cruelly and sadistically termed as a nation of 'cyber coolies' and worse.

BPO that began an backlash at how it was impossible to understand the 'barely accented Indian voice' at the other end of the line, and just how stupid those Indians were that they could not understand what an uneducated American Texan drawl or New York twang on the other end of the line wanted. A backlash that demanded and set into motion sanctions and US Congressional laws against outsourcing to India.

Well, just look at how far that same fledgling Indian BPO industry has come. It has metamorphosed from a Plain Jane or Ugly Betty, a Cinderella or Ugly Duckling of the services industry to the Toast of the Off-shoring / Outsourcing World, much sought after and much in demand globally.

India has taken the world by storm moving up the outsourcing ladder and beginning to outsource itself i.e. low-end work to other developing countries, such as, Philippines, who wish to emulate the success story that is India. It has leap-frogged its way into the charmed inner circle despite all odds, so much so, no matter what the others say, the British having deep inside knowledge of the Indian psyche and prowess, after all India and Great Britain, though making for Strange Bedfellows, nonetheless were bedfellows who indulged in intimate pillow talk for close to three centuries, want India to be part of the current permanent 5-members of the UNSC (United Nations Security Council) that China and USA have fought to keep out.

Ere long, they will too will give way as India wields greater clout, all due to a process called BPO that has put it back on the path of its former glory, once again respected for its deep knowledge both business and spiritual, and all things Indian being the 'Order of the Day'! BPO is no longer what it used to be! It has come a long way baby!

Asset-Light Model Provides better Supplier/Buyer Alignment

Source :

HCL Technologies Ltd has announced that in its latest Report titled "Infrastructure Management Outsourcing - The Emergence, Adoption, and Growth of IMO" Everest Research Institute, research arm of Everest Group, a Global Sourcing Advisory firm, has predicted a robust growth for the IMO market and hailed its popularity as "likely to Invigorate the Infrastructure Outsourcing (IO) marketplace, as it strips the labor from assets in outsourcing deals."

Everest described "asset-light model" as providing "better alignment of supplier incentives with buyer interests. Buyers find it beneficial to own IT assets due to the inherent flexibility, control, and benefits of scale. New technologies also serve as a catalyst for the asset-light approach, due to the constant turnover of the asset base and the difficulty of predicting the technology road map. Finally, the emergence of Remote Infrastructure Management outsourcing (RIMO) played a key role in Instituting asset light as a sustainable model."

Built on the fundamental philosophy of "asset light contracts" resulting in flexibility, control and transparency to the customer. The Company introduced the co-sourcing model of engagement in the market 5 years back and since then has been winning customer confidence through this unique differentiation.

Co-sourcing addresses the enterprises need for flexibility and strategic control of their IT Infrastructure outsourcing engagements. This model is based on a collaborative approach to outsourcing by defining it as an activity of partnership between the client and the service provider where the client retains assets, strategic decision making like technology refresh, policy definition and architecture issues, IT strategy etc., while the service provider takes over the day to day running of IT operations and provides recommendations on strategic aspects.

Commenting on the report, Anant Gupta, COO, HCL ISD, said, "Being a pioneer of the global delivery model of Infrastructure Management, we at HCL, have introduced many disruptive frameworks and models in this space. Everest's recent reports not only underline the relevance of this model but also describes it as key to sustainable IT Transformation and opens alternate options fro buyers to consider than the "traditional model" of outsourcing practiced by Big 5 outsourcing firms."

Now, outsourcing gets personal

Source: Timesofindia

It's the latest buzzword in outsourcing and soon it may touch your life personally. For outsourcing is fast transforming itself from being a multi-people oriented activity to an individual one.

And the new word for it is PPO or person-to-person outsourcing. Already, it's generating revenue worth $250 million annually worldwide, and by 2015, it's expected to be worth $2 billion.

Interestingly, in India, PPO generates revenue worth $65 million annually, but it's expected to touch $500 million by 2015. An eight-fold increase in nine years at a cumulative growth rate of 26%. Although still in its infancy in India, PPO will take another 3-4 years to establish here.

So what's PPO? It consists of those services that are offshored by individual entrepreneurs who are trying to bootstrap their new organisation as efficiently as possible. With technology advances and the growth of the Net, small offices, home businesses and freelancers can utilise PPO services and generate business.

Currently, PPO includes services like online tutoring, website development, graphic designing, software development, writing and translation services, accounting and tax preparation services, architectural services, etc. A paper by Alok Aggarwal, chairman, Evalueserve, a global research and analysis firm, predicts as the trend catches up, more and more consumers will be able to offshore jobs at fairly low cost and deliver on time.

At the moment, there are around five lakh vendors and freelancers from various low-cost countries in the PPO space. Out of these, approximately 30% are from India.

As of now, PPO is being done under two business models worldwide. First, direct interaction model where the individual client signs a contract directly with the vendor, who in turn either hires people on a full-or part-time basis or sub-contracts the job.

Although payments can be made through cheques or wire transfers, as the cost of the project is fairly low, clients usually pay through credit cards.

The second is the online marketplace model. Here, vendors enrol in an online marketplace by paying a monthly subscription fee, plus a fixed percentage of the revenue if they win the project. When an individual posts requirements for a new project in the online marketplace, that's communicated to the selected vendor/freelancer.

The client then awards the work to the appropriate person.

Tuesday, May 22, 2007

Global IT Spending To Reach $1.48 Trillion In 2010, IDC Says


Companies are expected to increase spending on IT services at a compound annual growth rate of 5.8% to reach $587 billion at the end of the decade.

Global IT spending is projected to increase at a compound annual growth rate of 6.3% to reach $1.48 trillion in 2010, a market research firm says.

Broken down by segment, worldwide software spending is expected to reach $327 billion in three years, reflecting a compound annual growth rate of 7.7%, International Data Corp. said Wednesday. The hardware market is projected to reach $562 billion by 2010, driven mainly by "robust" spending from the home business and consumer, communications, and government sectors. Specifically, IDC sees more money spent on volume servers, peripherals, storage, and networking equipment worldwide.

Companies also are expected to increase spending on IT services at a compound annual growth rate of 5.8% to reach $587 billion at the end of the decade, IDC said. Sectors expected to have the highest demand are government, banking, and discrete manufacturing.

The spending projections are contained in an IDC study called Worldwide IT Spending, 2006-2010 Forecast Update by Vertical Market: North America, West Europe, Asia Pacific, and Rest of the World.

Report: Offshoring to Have No Sudden Bad Effects


While offshore outsourcing is expected to affect wages and employment in developing countries, it won't have any sudden negative impact on developed countries' economies.

The report "Sizing the Emerging Global Labor Market" attempts to find a middle ground between those who argue that nearly all service jobs will eventually move from developed countries to low-wage ones, and those who feel that rising wages in cities such as Bangladore and Prague indicate that supply of offshore talent is already running thin. It attributes these rifts to a confusion surrounding the relatively new global labor market.

In analyzing the potential availability of offshore talent in 28 low-wage nations as well as the likely demand for it in service jobs across eight of the develop world's sectors--IT services, packaged software, retailing, financial services, health care, insurance and pharmaceuticals--the report found that these sectors provided about 23 percent of the nonagricultural jobs in developed country.

Demand for Offshore

The report estimates that 11 percent of these services jobs around the world could be carried out remotely. However, this number can be higher or lower depending on the sector.

The retailing sector, for example, with its large number of customer-facing jobs, only stands to be able to offshore 3 percent of its jobs by 2008, but being such a huge employer, this would be equivalent to 4.9 million positions. The packaged software industry, however, stands to remotely undertake almost half of its jobs in the same time frame, but being a smaller industry, this would be only 340,000 positions.

Offshore Talent Supply

The report argues the developing countries produce far fewer graduates suitable for employment by multinational countries than the raw numbers suggest, though it is quickly growing. The report found 33 million experienced young professionals in developing countries, versus 15 million in developed nations, and 7.7 million in the United States alone. Language gaps, an emphasis on theory versus practical knowledge and a lack of cultural fit are considered hindrances to actually employing much of this offshore talent.

The wave of Pharmaceutical Outsourcing Rocks India

If you've been under the illusion that outsourcing to India is limited only to software development and IT, it's time to sit up and take notice. Outsourcing to India is no longer taking baby steps in the field of Information Technology, but has stepped beyong it's boundaries to encompass various fields, including Pharmaceuticals.

Global Pharmaceutical companies that find themselves in financial need, and wanting in time, to carry out the various functions that make for successful working of a business, have made overtures to India for their research-and-development activities.

The only concern the Indian Government holds is that India must not be turned into a testing ground for other countries. Any opening or initiating move toward negotiations and a new relationship, must be in accordance with the bio-ethical guidelines, while steering clear all vagrant methods.

India is home to as many resources as 16,000 hospitals, 171 medical colleges and a considerable grouping of patients. These together make clinical trials a matter of brief duration, hence saving time and money. Japanese pharmaceutical company Eisai Co Ltd is one of the first to take advantage of the opportunity at hand. An investment of US$2.2 million is devoted to the process of manufacturing and carrying out clinical trials in India.

With companies looking eagerly to India as a busiess cluster that may provide a resolution for their manufacturing and other needs, the new regulations made effective by the Indian Government may stunt the growth of manufacturing in the pharmaceutical sector, in India. Excise duty on all drugs and medicine will now be payable at their retail price. Untill now, pharmaceutical companies saved on excise by getting their products manufactured on contract basis, so that the duty was being paid on the sale price to the company, and not the sale price to the wholesaler, which exceeds the common degree of profit garnered.

This may be a bitter pill for Pharmaceutical outsourcing, but the scope is much larger and the opportunities are vast. The roadbumps will come and go but the outsourcing industry in India with all the benefits it offers to global conglomerates, is here to stay!