Monday, July 30, 2007

The Road Ahead for Outsourcing Suppliers: Higher Costs


Commercial call center service providers are less able to absorb wage increases and currency fluctuations than software firms and remote computer system administration service providers, in part because of the way billing and payment arrangements for call center firms are tied.

Cost increases are squeezing margins for outsourcing Latest News about Outsourcing companies providing software and call center services to U.S. customers from popular international destinations. No immediate price increases for U.S. customers are possible for suppliers that are locked into fixed-term contracts in U.S. dollars, but price changes could be sought in contract renewals, extensions, and in the pricing of new contracts.

Prices for call center and e-mail Email Marketing Software - Free Demo support services provided by facilities in the Philippines, South Asia and the Persian Gulf have remained relatively constant since the end of 2004, as detailed here. That is likely to change for new and renewed contracts because of cost increases for suppliers.

There are three factors behind cost increases for suppliers:

* Currency exchange fluctuations
* Wage increases
* Tax increases

Canadian Dollar Approaches Parity

The Canadian dollar has gained 50 percent in value in the last five years. It is now within striking distance of parity with the U.S. dollar for the first time in over 30 years, reaching just short of the psychologically important benchmark of 95 US cents in trading last week. Wage rates for skilled customer service Get Automated Customer Contact Solutions Powered by West Interactive agents in major cities in Canada are now higher than wages paid in many second- and third-tier U.S. cities for comparable work.

Canadian governments and educational institutions are implementing coordinated educational and labor market policies to help ensure that staff with requisite skills are ready and able to meet expected job requirements, especially in the Maritime Provinces.

Philippine Peso Rises

The Philippine economy is booming. Exports have increased by 13 percent so far this year. Foreign direct investment increased by 26 percent in 2006. Along with economic growth has come a stronger local currency.

The Philippine peso has gained 6.7 percent in value against the U.S. dollar this year. Outsourcing service providers locked into contracts negotiated when the peso was low are now looking for ways to cut costs. Last June the peso traded at more than 53 to the dollar. It now trades at 46.6 pesos to the dollar.

India Rising

In India, the rupee has gained 8.7 percent against the dollar during the first quarter of this year. It now stands just a few paise bits above the psychologically important threshold of 40 rupees to the dollar.

The customer service industry in India has been consolidating for more than two years. The larger players enjoy profit margins of 20-30 percent and will be able to absorb currency fluctuations in the short term. Smaller players generally have profit margins of 10 percent, with lower profits often due to a reliance on telemarketing projects rather than stable inbound work. Indian firms of all sizes will likely push for price adjustments in contract renewals and in price proposals for new contracts.

India is experiencing the most rapid wage increases of any country in the Asia-Pacific region. Wages in India are influenced by regional factors, as found in this salary survey of call center agents in major metropolitan areas.

Kolkata (formerly Calcutta) continues to be the lowest-wage metro area for both call center and technical staff. Rolta India Limited announced on June 6 that it is building an IT park there with 5,000 seats, primarily for the provision of engineering and software development services.

Wage rates in India as a whole are forecast to climb from between 12 percent to almost 16 percent this year, with professional employees and middle managers expected to be at the higher end of that scale. Increases for technical employees are expected to average around 12 percent, or 7 percent after inflation. Overall wage increases topped 14 percent in both 2006 and 2005.

Call Centers Less Able to Absorb Cost Increases

Commercial call center service providers are less able to absorb wage increases and currency fluctuations than software firms and remote computer system administration service providers, in part because of the way billing and payment arrangements for call center firms are tied to labor hours. A company whose business model is based purely on labor arbitrage will be immediately impacted by currency fluctuations and wage increases.

A company that bills on a task basis without defined headcount requirements may be able to grow without adding large numbers of new personnel. A company that bills on a task or project basis can also raise its prices quietly by simply adjusting the formulas used to submit price quotes and bids for new work.

Indian Taxes

India's current national budget includes a minimum alternate tax Free Trials. eCommerce Data Solutions, Tax Rates, Address Verification & more. (MAT) to be applied to Indian IT firms and call centers on revenue from work done for clients outside of India. These firms had enjoyed tax exemptions from standard corporate income tax rates because of their status as export-oriented IT operations. This 10-year period of exemption comes to an end in 2009, when full corporate income tax rates are scheduled to be applied.

The 10-year exemption was established under the Software Technology Parks of India initiative. Some IT firms are lobbying for the government to grant them tax-exempt status after 2009 under India's system of incentives for firms located in special economic zones.

Indian companies that serve both domestic and international customers are already paying corporate income taxes on income from their domestic operations. Companies locked into multi-year contracts with clients outside India will be under pressure to pass those tax increases along to customers.

Offshoring 2.0: The Post-India Market


What will be the next big offshoring frontier? While the experts don't all have the same locations in mind, they all agree that it will no longer be in India. Salary inflation is largely to blame for the change in course. When the outsourcing boom took off in 2004, the salaries of software engineers were one quarter of what San Francisco-area computer engineers made, making very clear the cost savings of offshoring.

However, it wasn't only salary inflation that has caused many technology firms to pull their labor out of offshore centers; it was the hidden costs they hadn't anticipated such as geographic and time gaps, the need for more U.S. managers to oversee the outsourced relationships and the significant costs associated with pulling out.

Companies that are not pulling out of outsourcing relationships altogether are shifting their offshore office to newer and different regions. A report released by the Aberdeen Group found that while India remains the leading offshore destination for most companies—especially if cost savings are the primary driving force—both Russian and Asian providers are maturing quickly and sustaining double-digit growth by competing on both price and quality.

Wage inflation and higher attrition issues, as well as a rising demand for technology professionals in India are causing enterprise customers to shift from tier 1 to midtier providers, finds the report, and argues that companies that want to stay ahead should take advantage of multiple offshoring locations across the globe, or multisourcing.

In comparing potential offshore delivery centers based on labor, cost of rent, language skills and turnover rate, IDC found in a report that while Indian cities were still highly ranked, Chinese cities were on the rise and closely nipping at India's heels.

Conrad Chang, research manager for IDC's Asia/Pacific BPO Research said that there are different risk factors to consider when evaluating outsourcing, offshoring, onshoring and nearshoring.

"Often times, what differentiates leading cities from the rest is their focus on deal-clinching factors, and the GDI [Global Delivery Index] weighs that more heavily than other factors," Chang said.

Agent skills, political risk, cost of labor and language skills were all factors considered in the IDC report's ranking of three Chinese cities—Dalian, Shanghai and Beijing. These three cities were ranked by IDC as numbers five, six and seven of the top ten locations for global delivery. IDC predicted that Chinese cities could take over Indian ones as early as 2011.

Saturday, July 28, 2007

Maturing Finance & Accounting Outsourcing Market is Driving Innovation beyond Labor Arbitrage

Source: Businesswire

Everest Research Institute Study: Global Buyers Now Looking to Source Skills from Multiple Regions; 77 Percent of FAO Contracts Have Elements of Offshore Delivery

Findings from a new Everest Research Institute study reveal that among all outsourced General and Administrative functions, Finance & Accounting Outsourcing (FAO) has the highest rate of global sourcing adoption, with 77 percent of contracts having elements of offshore delivery. As operating models continue to improve and output quality rises, more global buyers are looking to source a growing number of skills from multiple regions, and suppliers are driving innovation beyond pure labor arbitrage to remain competitive.

“The FAO market, enticed by labor arbitrage-driven savings, launched into a ‘rapid-growth' phase beginning in 2002,” said Katrina Menzigian, Vice President, Everest Research Institute. “Today, the value proposition around offshoring in FAO is evolving in two key areas. First, we are seeing suppliers deliver on the promise of global sourcing by actively pursuing low-cost regions other than India, with Eastern Europe being a focus area. Second, Everest is increasingly seeing the inclusion of judgment-intensive processes, such as analytics and reporting, incorporated into the globally sourced components of FAO deals.”

The study, entitled “Global Sourcing in Finance & Accounting Outsourcing,” reveals that while labor arbitrage and productivity improvements can potentially save buyers between 30 and 40 percent on their direct-costs, these are one-time benefits which typically stagnate as the deal progresses. As such, buyers are seeking contracts with continuous improvement parameters and innovative sourcing models such as a combination of global sourcing, technology enhancements, and process improvements for optimal service delivery and ongoing cost savings.

“Now that buyers are looking beyond a one-time savings impact from labor arbitrage and sourcing their Finance & Accounting processes from a large, well-established pool of suppliers, they need to ensure careful evaluation to identify the solution that is best suited to their needs,” said Saurabh Gupta, Research Director, Everest Research Institute. “At the same time, suppliers need to boost their onshore resource base, invest in technological solutions and processes as well as develop expertise around key market segments in order to remain competitive and to provide incremental value to the buyer year on year.”

The study also recognizes key responsibilities for buyers. To identify a solution that fits their needs in this complex and competitive market, buyers must assess niche providers, delivery locations and global solutions. Buyers also will be responsible for co-driving innovation initiatives, such as engagement structuring and management, throughout the project lifecycle.

About Everest Research Institute

Everest Research Institute ( serves as a central source of independent and objective strategic intelligence, analysis, and actionable insight for leading corporations, service providers, and investors in the global outsourcing and offshoring marketplace. The Institute addresses both business process and information technology sourcing topics, providing the global outsourcing and offshoring community with information that empowers highly productive, sustainable sourcing strategies and relationships. The Institute’s distinguished Board of Advisors, senior executives and thought leaders oversee the Institute’s research agenda to ensure that it fully supports the business needs of corporations, service providers and investors.

Outsourcing market looks healthy in second quarter but capacity constraints linger


While reports continue to cite drops in outsourcing demand growth, EquaTerra's 2Q07 Pulse Survey study shows signs of continued market health. The second quarter study supports EquaTerra research and analysis released earlier in the year, outlining a "reshaping" of the outsourcing market as opposed to a downtrend.

Said Stan Lepeak, EquaTerra’s Managing Director of Research, "The outsourcing market is clearly maturing and growing in new areas, as we’re seeing initiatives of all shapes, flavors and sizes. And while this bodes well for organizations looking to attain the variety of benefits outsourcing can deliver, those who source on a smaller, more distributed basis must safeguard against losing value in the process. Buyers must ensure they leverage their spend and relationships with their providers, appropriately staff their governance processes -- some centrally, some decentrally -- and deploy a comprehensive governance program using the latest techniques and tools."

Signs of continued market health from EquaTerra's 2Q07 Pulse Survey include:

* Global and regional demand: Outsourcing demand was up 50 percent in 2Q07 in the Europe, Middle East, Africa (EMEA) region, and up 37 percent globally, as cited by EquaTerra advisors.

* IT outsourcing: One half of EquaTerra advisors cited IT outsourcing (ITO) as the strongest functional growth area, continuing strong 1Q07 demand trending; demand for ITO in Europe was especially strong during the quarter as demonstrated by the fact that 60 percent of the publicly announced deals of greater than $50 million in total contract value in May and June 2007 were for buyers based in EMEA countries.

* Finance and accounting outsourcing: Another one thirdof EquaTerra advisors cited finance and accounting outsourcing (FAO) as the leading outsourcing demand area; demand is particularly strong in EMEA.

* Public Sector outsourcing: Outsourcing in the public sector is increasing in both North America and Europe, as illustrated by the ~ $20 billion telecommunications outsourcing deal between the U.S. General Services Administration and a Verizon/CSC consortium, and the €1.3 billion+ ITO deal between the Italian Central Government and AlmavivA Group.

* Smaller, "under the radar" deals: The market is experiencing an influx of ~ $1 - $10 million outsourcing engagements, many with clients using a variety of providers; these deals may not be publicly announced, and often remain under the internal radar screen due to their size

Despite the positive market findings, both providers and buyers continue to experience a dearth of talent possessing the skills and experience required to support increasingly complex outsourcing deals. On the service provider side, these talent challenges -- which EquaTerra refers to as "capacity constraints" -- include insufficient experience in sales pursuit, engagement, transition and actual service delivery. Buyers are challenged with a lack of sufficient skills and experience to support transition and ongoing governance requirements. These capacity constraints impact demand growth in some regions and functions, pricing competitiveness, sales cycle, time-to-contract, profitability and satisfaction with the initiative.

Other key findings from EquaTerra’s 2Q07 Pulse Survey include:

* Outsourcing buyers, in general, are more positive about their outsourcing experiences than in past quarters, and are more realistic and sophisticated, especially relative to outsourcing’s ability to deliver innovation and process transformation.

* There is ongoing growth of multi-location global service delivery capabilities.

Friday, July 27, 2007

India's Infosys Technologies wins US$250 million outsourcing deal from Philips Electronics


Indian software company Infosys Technologies Ltd. said Wednesday it has won a US$250 million (€180 million) outsourcing order from Royal Philips Electronics NV to handle its backoffice work relating to finance and administration.

Under the seven-year deal, Bangalore-based Infosys will take over the Dutch company's back-office centers in India, Poland and Thailand, Chief Operating Officer S.D. Shibulal told The Associated Press.

Philips currently uses these centers to process purchase orders, prepare bills and handle other tasks relating to financial administration. All that work will now shift to Infosys.

"This is one of the largest (outsourcing deals) in the finance and administration space," Shibulal said.

It is also "a first for Infosys" in terms of the number of employees that it will be taking over from Philips, he said. The three centers currently employ about 1,400 people and all of them will transfer to Infosys rolls.

"Infosys clearly demonstrated a willingness to invest in people with a strong HR process, better solution quality ... and a robust risk mitigation and transition plan," Gerard Ruizendaal, Chief Strategy Officer at Philips, said in a statement. "Their leadership capabilities were clearly evident in all interactions and proposal submissions, with a strong focus on the customer," he said.

News of the deal lifted Infosys shares by 0.7 percent to 1,990 rupees in Wednesday's trading on the Bombay Stock Exchange.

The deal is intended to help Philips focus on its core business of lighting and electronic equipment manufacturing, while Infosys benefits from higher revenues and expanding global footprint, Shibulal said.

Companies like Infosys have seen their sales and profit grow rapidly in recent years as Western companies increasingly transfer software development and back-office work to India, where wages are low and skilled, English-speaking workers are plentiful.

To keep the momentum going, Indian software companies are looking to win more customers outside the United States, traditionally the largest client country.

Earlier this month, Infosys cut its forecast for full-year revenues and profit because of the rupee's sharp appreciation against the U.S. dollar. North America accounts for 65 percent of the company's revenue that totaled US$3.1 billion (€2.24 billion) in fiscal year ended March, while Europe's share was about 25 percent.

World Human Resource Outsourcing Market to Exceed US$78.8 Billion by 2010


With only about 5% of Fortune 2000 companies and 1% mid-market companies involved in the multi-process HR BPO contracts, there lies huge potential for HRO market. Enhanced global delivery capabilities of HRO service providers are driving demand for large multi-purpose HRO contracts. By offering plethora of services, new players entering into HRO middle-market are aptly addressing the HR requirements of companies with about 1,000 to 10,000 employees.

World human resource outsourcing (HRO) market is all set to exceed the US$78.8 billion mark by 2010 at a healthy CAGR of 10.71% over the 2000-2010 analysis period. As stated by the recent report published by Global Industry Analysts, Inc., the United States, with a share estimated at 48.90% in 2006, forms the largest market for Human Resource Outsourcing, while fastest growth is expected to emanate from countries in the Asian region, with a projected CAGR of 15.74% over the aforementioned period.

In terms of service sectors, payroll services market constitutes the largest outsourced service, with a share estimated at 29.34% in 2006. Fastest growth, however, is expected to emanate from the education and training services market that is expected to post a CAGR of 13.08% over the 2000-2010 analysis period. Other services independently analyzed include Benefits Administration Services market, Recruitment and Staffing Services market, Hiring Administration Services market and Other Human Resource Outsourcing Services market.

Outsourcing of administrative functions to third parties is not new, and dates back to the 1940s, when Automated Data Processing instigated service offerings. In the year 1949, ADP (formerly Automatic Payrolls Inc.) was the first company to offer payroll services to its customers. However, most of the services provided in the past were for single-process, transaction-focused HR services such as workers compensation, payroll, payroll taxes, training, or employee benefits. Additionally, client companies generally outsourced a few back-office HR functions, while performing other HR functions in-house. In 1998, Proctor & Gamble signed a 10-year contract worth US$400 million with IBM for outsourcing of its HR functions.

Contract negotiation cycles are getting shorter and buyer confidence being increased with Tier 1 HRO service providers entering into large and complex contracts that require huge capital investment in regional shared service centers with excellent HR expertise. By offering plethora of services, new players entering into HRO middle-market are aptly addressing the HR requirements of companies with about 1,000 to 10,000 employees. Number of contracts received by HRO suppliers is increasing, with the time span ranging from seven to ten years, as compared to earlier five-year term. Increased HR service offerings that include payroll, benefits administration, and employee care are expected to drive prices down. Further, by leveraging offshore resources and refining delivery systems, HR service outsourcing providers can significantly offer cost savings. Surging interest of multi-national organizations to benefit from multi-national contracts is expected to raise multi-country HRO capabilities of HR service providers.

HRO is also driven by offshore outsourcing trend with most of the outsourcing focused on processing services. Philippines, India, South America, and China are some of the major regions with more offshore contracts. There is a shift in vendor focus from payroll, benefits administration, and employee care services to recruitment, absence management, and learning services. Also, there exists a market shift in vendor focus towards business case metrics development. HRO is still a growing market and is rapidly transforming to an industry that supports complete business processes from an earlier model of payrolls service bureau.

HRO industry is likely to witness growth in the business from mid-market companies. It is expected that HRO suppliers would receive more number of outsourcing deals that are of smaller value from mid-market clients in the near future. Though few mid-sized companies can spend substantial amounts of over US$25 million per year on HRO, the number is on the rise.

Organizations are innovating on various tools such as performance indicators and standard HRO performance metrics for critically analyzing HRO processes. They are employing these tools to determine return on investment, and to monitor Service Level Agreements (SLAs) related to HRO functions. Corporate HR leaders are ensuring that services offered by HR providers are actually worth the value paid.

IBM, Hewitt, and Accenture are the major players dominating HRO industry, with considerable market shares. The industry also includes small and large new entrants, including Yurcor and SAP.

Tuesday, July 24, 2007

First time outsourcing, a new path to success


Impact of external factors like the rising exchange rate of rupee against all global currencies on the exports sector of the economy has begun to show in the top and bottomlines of the IT industry.

But the confidence of industry CEOs is high about the vast global opportunity that global offshore outsourcing still presents and efforts are on in most significant companies to weather the currency storm and increase focus on profitable business development and execution through innovative ways.

Innovation in this industry consists of two opposite yet complementary thrusts. Looking inwards where many tactical moves are possible including training and preparing the new generation of industry entrants to participate in global IT and BPO projects, developing multi-skilled work force to enhance deployment-flexibility, and a sharper focus on operational excellence.

On the customer acquisition front, while the traditional focus on large volume applications support and development deals continues and expertise across a range of enterprise package software implementation, migration, hosting and support is intensified, the big white space of first time outsourcing customers is another significant opportunity that can fill revenue and profit gaps in the medium term.

Engagement at senior levels in the vision and execution of outsourcing, something that even larger companies have sometimes failed to do as they develop an attitude of piecemeal or tactical outsourcing, is one key differentiator that presents both a challenge and an opportunity.

Workshops to articulate the specific firm benefits for the firm can lead to a robust applications portfolio analysis for outsourcing and ensure that the four key factors that have to be managed for success. These are the business processes to be optimised, the technology both for existing applications and for management of the new outsourced processes, the ongoing engagement of key leaders and managers in maximising the benefits garnered from outsourcing and the preparation of a facilitating organisation culture to enable all participants to willingly and effectively play their role in the transition to the new ways of working.

There is often a fear that smaller firms will be more difficult to sell to as well as support and the time required to achieve success with first time outsourcers could probably be more profitably invested in a renewed thrust on large deals. As the industry expands, it is sometimes the breaking of these paradigms that can give as much joy and success as continuing to tread the beaten path.

SMBs and the Outsourcing Decision

Source: Ecommercetimes

IT functions most often outsourced by small businesses include virus protection and security, e-mail and messaging, accounting and payroll, and data storage and backup. However, some companies may be wary of giving an outsider access to sensitive information as it relates to customers, employees and financial information.

Almost 60 percent of small companies' information technology is outsourced to third-party providers -- and a number of whom are in the Virginia, West Virginia, Maryland and Pennsylvania quad-state area -- the largest of which are listed in the Quad-State Business Journal's "2007 Book of Lists" under Computer Dealers/Networkers.

As with many outsourcing Latest News about Outsourcing decisions a small business owner must make, the key question relates to whether or not the IT function is within its core competencies; does it lie within the IT staff's main areas of strength like desktop support? If not, and depending on the complexity of the computer system Manage remotely with one interface -- the HP ProLiant DL360 G5 server. and the various applications used to manage the business, then outsourcing may be the answer.

Cost considerations also come into play. Is it less expensive to contract out a certain number of hours of IT support a month or a year than it is to hire someone full time, and is that individual easy to find? A lot depends on the company's budget, as well as if backup support needed on a consistent basis.

Sensitive Information

IT functions most often outsourced by small businesses include virus protection and security, e-mail Email Marketing Software - Free Demo and messaging, accounting and payroll, and data storage and backup.

However, some companies may be wary of giving an outsider access to sensitive information as it relates to customers, employees and financial information. In that regard, only 16 percent of companies with between 50 and 499 employees outsource technology security, according to AMI-Partners, a New York City consulting firm.

Here are some tips in signing a contract with an IT vendor:-

# Have an exit strategy if things don't work out.
# Meet the people from the actual team that will be doing the work.
# Do a thorough check of references supplied by the IT vendor.
# Have in your files a second choice vendor if the first one doesn't work out to your satisfaction.
# Be careful of scope creep where work requirements change or are added to the initial work plan.

Monday, July 23, 2007

Make The Clothes, Outsource The Retailing

Source: Forbes

When brothers Shep and Ian Murray decided to expand distribution of their preppy, nautical-themed apparel, they didn't know the first thing about running a retail store. That's why they let their competitors do it for them--and have been making decent waves ever since.

Armed with a slug of credit card debt, the brothers traded their entry-level New York City jobs back in 1998 for the chance to sell cheekily patterned ties out of their car's trunk. By 2004, Stamford-Conn.-based Vineyard Vines had stretched beyond ties and tote bags into a full assortment of men's, women's and kids' weekend wear and accessories, sold in bits and pieces through high-end department stores and specialty shops catering to the country-club set.

Still, there was no one place where customers could buy the whole range of Vineyard Vines apparel--and opening up their own slew of stores was an accident waiting to happen.

"It's very complex to open a retail store," says analyst Marshal Cohen of The NPD Group, a retail consultancy. "These guys are smart enough to realize they don't have the expertise."

Outsourcing has become a core strategy for firms big and small. Apple and Cisco outsource most of their manufacturing; Nokia and Royal Bank of Scotland lean on India's Wipro and Infosys Technologies to handle IT work; even big banks like Bank of America and Lehman Brothers are now farming out some of their research and financial analysis. Now the Murray brothers are applying that model to retail, with decent success.

Their march began on the tony Massachusetts resort island of Martha's Vineyard, where years of vacationing had made the Vineyard Vines brand a hometown favorite. The plan was to ask a local retailer already carrying their line to open and manage a standalone store selling only Vineyard Vines; that would leave the brothers and their staff to dream up new designs and market the brand by sponsoring regattas and the like.

The store owner balked at the request, so the brothers took the plunge and opened their own shop on the island. When the store didn't flop, the retailer agreed to open a second one on nearby Nantucket Island. More stores followed in Hyannis on Cape Cod and posh Greenwich, Conn., all in partnership with experienced, family-owned retailers.

Here's how these agreements work: Both partners split the initial start-up costs, which include tricking out each store with nautical art, old guitars and boating memorabilia in keeping with the brand. Vineyard Vines sells its products at wholesale to the retailer, who handles the day-to-day operations, though the Murrays retain creative control over how their goods are presented. The store owners provide feedback on popular items, as well as comments from customers on what they would like to see in the future. Promotions are announced simultaneously in the stores and on the Vineyard Vines Web site.

The partnership model has helped Vineyard Vines nearly triple its revenue since 2004, to $37 million. The brothers claim their operation has been profitable since inception, but they won't discuss hard figures.

Saturday, July 21, 2007

Outsourcing at a crossroads


High talent turnover can wipe out cost advantage, as India is discovering

Companies looking to be a part of the information technology outsourcing trend in the region should consider other aspects of competitiveness apart from mere cost effectiveness, says an industry expert.

"The paradigm is shifting away from just being a cost-competitive player in the market. Instead it is more toward value creation, and this is going to change the landscape of the outsourcing service industry in the near future," said Aroop Zutshi, president and senior partner at Frost & Sullivan, a multinational consulting group.

Outsourcing, which currently is associated with hiving off various business processes to companies in countries such as India, was a $930-billion industry in 2006 and is poised for 15% annual compounded average growth rate over the next three years to $1.43 trillion, a Frost & Sullivan study shows.

The study, which was conducted from February to June this year across the company's vast network of clients and offices across the globe, showed that the major was coming come from a shift of outsourcing hubs to other parts of the world, and away from traditional centres such as India.

"The biggest problem that India is facing today is the attrition rate, which in some instances is running as high as 70% annually," Mr Zutshi said.

"Creating more problems for the industry is the fact that costs in India are rising by as much as 25-35% annually, and this is one of the key reasons why some global outsourcing giants are shifting their bases away from India to other parts of the world."

Mr Zutshi said that even with more than three million engineering graduates entering the market each year, India's reputation has been tarnished due to the higher cost and attrition rate.

"The biggest challenge that companies are facing in India is the retention of talent, as it costs more than two or three times the salary to train and bring the employee to a highly productive level - and then companies are seeing this talent flow out to other companies," he said.

He added that such factors have helped to push even Indian companies away from home turf, with outsourcing giants such as Satyam and Infosys gradually shifting part of their operations to other countries such as China, Ireland, Malaysia, Mexico, the Czech Republic, Poland, Philippines and Canada.

"These countries have the cost advantage, the quality and availability of human capital and the infrastructure to support it, and as there is higher demand from the technological, health-care, fast-moving consumer goods and retail areas that is set to rise, these countries are likely to benefit," Mr Zutshi said.

He added that countries looking to be emerging SSO centres should also look at their immigration regulations to ensure they can attract talent to settle on a long-term basis.

Frost & Sullivan said that during 2006 the top three spenders on SSO were the banking, financial and insurance sector with $273 billion, technology and ICT at $233 billion, and health care at $130 billion, accounting in all for more than 50% of SSO spending.

Other areas that are heavily involved in outsourcing included transport and logistics ($113 billion), energy ($84 billion) and fast-moving consumer goods (FMCG) at $59 billion.

"We have seen what has happened in India. It took the country just three years to reach this stage and we want to avoid such mistakes, and therefore would look at all means not to overheat the SSO market," said Zulfiqar Zainuddin, head of marketing and partners for SSO at the state agency Multimedia Development Corporation Sdn Bhd, which is in charge of promoting the IT industry in Malaysia.

"We are not there to take away the industry from these two countries but instead to complement them and this can only be done by cross-pollination - that is, to bring in outside talent and mix it with local talent," he said.

Outsourcing printing helps streamline operations


There is not always power in numbers. Whether an organization is local, national or global, the process of centralizing commercial printing, promotional products, warehousing and fulfillment has proven to be successful on many levels.

Centralizing printing requires moving away from a project-by-project mentality to a philosophy of business processing outsourcing and procurement management with one source.

The idea of BPO, while not new to the corporate world, is fairly new to the graphic-communications industry. If executed effectively, BPO can help an organization achieve print consolidation and deliver a faster, more convenient and cost-effective print-management process. And the organization’s brand police will sleep better knowing brand guidelines are being protected across departments, locations and marketing literature.

Leaders jump on board

AOL, BP, Discovery Communications and E-Trade Financial are all leaders in their respective industries. And as leaders often do, they are adapting a new method for managing their printing by outsourcing printing, promotional products, warehousing and fulfillment.

Before outsourcing and centralizing its collateral, E-Trade had about 30 printers nationwide servicing its branch network. This lack of centralization meant E-Trade could not easily estimate the amount of money spent on printing, fulfillment and warehousing. More importantly, it was not accurately managing its master and 20 sub-brands.

Don’t forget your life raft

Organizations may fear losing control of the print-management process and experiencing a drop in quality. However, those with the courage to outsource actually gain control of the process and experience quality improvements.

The key to a manageable and smooth transition is working with the right business partner. Here are a few considerations:

Workflow experts. Does the print-management company focus on the entire document-management process? Or are they simply focused on getting an organization the best printing prices? What is important is that the print-management company has workflow expertise, and with that will come printing cost efficiencies.

Standard or customizable solutions. Will the organization benefit from an online-procurement program that is turnkey or a program that is flexible and can accommodate growth and changing needs? Additionally, there are solutions that enable organizations to customize the look and feel of the procurement site.

Software requirements. There is no need to purchase additional software to run a successful e-procurement program. Programs are typically run through intranets or Enterprise Resource Planning systems, such as Ariba, SAP and Oracle.

Customer support. While most online-procurement programs are simple to learn and navigate, customer support is still a necessary component. Inquire about online support, as well as staffed help desks. Customer support will be essential not only for the launch of the program but also on an ongoing basis.

Upgrades. How often does the print-management organization conduct upgrades of the e-procurement system? Some have more ongoing, rigorous upgrade programs than others, enabling an organization to provide feedback and see the changes implemented to the entire system in as little as three months.

Digital-assessment management. Managing digital files is just as important as managing printed pieces. An online-procurement system that allows organizations to store and share digital files — logos, photos, sales materials, videos and sound bites — can help manage the brand by ensuring the correct digital files are being used and also simplifies the process of file sharing among multiple locations.

Friday, July 20, 2007

Time to spread your outsourcing risk

Source: Zdnet

The "mega" outsourcing deals of the past struggled to deliver innovation or the significant service improvements expected of them. Not all have been catastrophic, headline-hitting failures, but many simply did not live up to their billing.

A new trend in outsourcing has developed as a result — multisourcing. In 2006, the central theme of one of the industry's biggest shows, the Gartner Outsourcing Summit, was the new trend of multisourcing. This year the central theme remained the same as many companies now have experience of implementing and managing multisourcing relationships. But, before the implications of this new approach can be analysed, it is first important to discover why the long-term single supplier approach appears to have failed.

Initial outsourcing engagements barely went beyond performing functional tasks more cost-effectively and productively. While costs may have been reduced in the short term, no real emphasis was placed on adding any value to the business. When inadequate results were delivered, the outsourcing suppliers had to go back and rethink the implementation strategy and any short-term cost savings tended to disappear.

Traditional contracts spanned anything from five to 15 years but work was often poorly defined and focused on transactions to such an extent that suppliers became "slaves to SLAs [service-level agreements]". Whatever the investment made in RFPs (request for proposals), due diligence and the like, the risk from a lengthy project was incredibly high and companies realised they couldn't afford to put all their eggs in one basket.

The outsourcing landscape has instead moved towards using one of multiple suppliers, with chief information officers selecting specialist providers to make the most of the available outsourcing options. One of the obvious advantages is the "best of breed" effect. A chief information officer can now deploy an outsourcer for individual projects, individual services, or outsource finite parts of their function, which clearly makes more sense than offering a contract based on an ability to service every possible function at an acceptable level.

Gaining a multisourcing mindset

However, to implement a successful multisourcing approach, a new mindset is required from an organisation. Gartner describes multisourcing as an innovative discipline that takes organisations beyond "quick fix" cost-cutting to enable capability building, global expansion, increased agility and profitability, and competitive advantage. Central to a successful multisourcing approach is the creation of an outsourcing strategy that is linked to the overall business strategy, enabling the customer to meet strategic goals and win market share.

Firms looking to move beyond outsourcing to multisourcing must, therefore, have an integrated sourcing strategy across all services, and, to reap the benefits, an outsourcing team with specific skills and experience is required, as well as a supplier that understands the business structure and commercial environment in which they work. Companies must remember that multisourcing is about building relationships, not just signing contracts and "throwing it over the wall".

Vendors need to ensure that relationships are developed across the client's business; it is no longer enough to have one point of contact with the customer. This is not purely so that vendors can sell more; rather the customer should see it as a way to maximise on the vendor's capabilities, making the vendors work for their department, and the company as a whole, to drive business success.

Innovation is another crucial component to successful multisourcing arrangements. Companies can look to outsourcing to deliver major service improvements and business benefits, rather than simply solving a problem. Reduced cost is almost a given, but companies should be aware that the lowest-cost option may not be the best for innovation. By maximising on the cost-saving capabilities of a global delivery model, and providing an in-depth local consulting presence with on-site teams focused on the customer's business applications, suppliers can invest in and deliver innovation.

As the multisourcing market matures, the most value and strategic business impact will be seen in those engagements where a real partnership exists. From the perspective of both the chief information officer and the supplier, the importance of forming and nurturing deep relationships between the two parties has never been more important.

Leverage Your Business with Back Office Outsourcing


Back office is that aspect of any business that takes care of all the works related to the smooth functioning of any organization. Today, the world is very competitive and to stay ahead of the competition, business owners need to constantly improve upon the ways in which the whole aspect of their business is conducted. Back office outsourcing is one strategy that can be successfully adopted for taking care of all the back office related work of any business.

Global statistics indicate that the benefits of outsourcing are so many that this process is going to stay for a long time, and more and more businesses are opening up to the idea of undertaking this process. It is understood that running a business successfully is a tough task and this is not everyone�s cup of tea.

As a business owner you will have to focus your attention on many aspects of your business, and what is important is that you will have to give the same amount of attention to every aspect. Now if you happen to be one of those business owners that have the knowledge, expertise and skill to handle all the different aspects of your business properly, then you are really fortunate. But all of us know that this is rarely possible and at some point or the other, you will require the services of an expert to help you in the different processes including the back office works. Hiring the services of a back office outsourcing firm will work out to be beneficial for you in several ways.

You must find out how feasible it will be for your business, if you go about undertaking back office outsourcing from a third party. Some of the main functions of back office in an organization are verifying, settling, reconciling and confirming all the financial transactions that take place on a daily basis in the organization. In other words the back office division of any organization handles all the time consuming and difficult top manage aspects of the organization. Back office outsourcing is beneficial in the sense that an organization can hire the services of highly qualified professionals to do the work, and this ensures that they get quality service. Normally hiring the services of trained professionals to handle the back office work can be really difficult as they charge a very high price.

However if you hire the same service through back office outsourcing, be assured that the money you will be charged will be nominal. One thing that you will have to do on a regular basis is to keep a tab on the work that is being done under the process of back office outsourcing from your business. This is to ensure that you know about the type of work that is being done for your business and see if this is suitable for your business or not. If at any time you are not satisfied with the work being done, you can hire back office outsourcing services from another firm to do the work for you. There are many outsourcing firms operating in the market and it will not be difficult for you to find one.

Thursday, July 19, 2007

Indian Outsourcing Has a Hedge in Its Backyard

Source: Bloomberg

Indian software companies, which compete furiously with each other for global outsourcing deals, are now facing a common enemy in the rising rupee.

Infosys Technologies Ltd., India's second-largest computer- services provider, last week pared its full-year sales and profit estimates. A strengthening home currency is reducing the rupee value of its dollar revenue and earnings.

Tata Consultancy Services Ltd., Infosys's bigger rival, this week reported that its profit margin was hurt by 2.6 percentage points in the three months ended June 30 by, among other things, a 7 percent appreciation in the rupee against the dollar, the biggest quarterly gain in more than three decades.

The company said it managed to ``largely offset'' the impact on net income by hedging its revenue against an increase in the rupee's value.

Although the day-to-day volatility in the exchange rate has abated since the end of April, the challenge of long-term competitiveness remains for Indian exporters.

As the Indian economy expands 9 percent a year, soaking in larger amounts of overseas capital, the real effective exchange rate of the rupee is bound to rise.

Since inflation tolerance in India is low, much of this adjustment will occur through an appreciation in the nominal currency value. The Indian central bank will try to hold the rupee down when it can afford to loosen monetary conditions at home. It would be less willing to protect a competitive exchange rate when doing so could lead to overheating.

All is not lost for Indian software exporters. The economics of outsourcing are still in their favor, though wage costs are galloping, too.

A Blueprint

Partha Iyengar, vice president at research firm Gartner Inc. in India, has a blueprint that Indian companies can use to mitigate cost pressures.

Their first task should be to walk away from simple code- writing and testing -- the ``$10-an-hour'' work that Iyengar estimates still makes up 55 percent to 65 percent of the revenue generated by top Indian software exporters.

Beaten in Backyard

Out of the several large outsourcing deals from India in the past several years, few have gone to Indian companies.

In March 2004, IBM won a $750 million order from Bharti Tele-Ventures Ltd., an Indian mobile-phone service provider.

Around the same time, Dabur India Ltd., a local maker of shampoos and beverages, asked Accenture to manage its computer systems. A 10-year, $150 million order from Bank of India, a state-owned commercial lender, went to Hewlett-Packard Co.

Meanwhile, IBM and Accenture are expanding in India, hiring the same programming talent as their homegrown rivals. Unlike the latter, however, they also have a larger pool of business consultants, people who understand clients' needs.

``It won't take an IBM six months to line up a supply-chain specialist to go talk to the board of directors of a prospective client,'' Iyengar said.

Neglected Home Market

To stake a credible claim for, say, a $2 billion global outsourcing order, Indian companies must first show their ability to execute large projects at home, says Iyengar.

This reality is still not widely understood.

At Infosys, revenue generated within the Indian market is just 2.4 percent of North American sales.

Telecommunication, Retail

These are also businesses that are most likely to place large outsourcing orders. When Bharti Airtel Ltd., as the company is now called, placed its order with IBM, it had 7 million mobile-phone subscribers. Now it has 43 million.

Had an Indian outsourcing company won the chance to meet the company's information-technology requirements during this explosive growth, it could have leveraged that experience to seek deals from Vodafone Group Plc or Sprint Nextel Corp.

The same is true now for retail.

Mumbai-based Reliance Industries Ltd., which began setting up supermarkets last year, intends to make it a $25 billion business by 2011. According to media reports, it's going to spend at least $250 million on technology.

These local growth engines offer learning opportunities. Indian outsourcing companies must tap them if they want to go beyond being low-cost service providers.

Apart from its other advantages, local, rupee-denominated revenue will also serve as a natural currency hedge.

Asia-Pacific Sees 100% Increase in New Outsourcing Deals

Source: Businesswire

* Asia-Pacific market shows 3rd straight half-year of new business growth
* Asia-Pacific BPO market bucks the global trend
* Inclusion of offshore delivery in outsourcing deals hits record high
* Telecoms sector leads in outsourcing contract value

Demand for outsourcing in Asia-Pacific grew strongly in the first half of 2007, compared with the same period last year, according to the latest Quarterly Index from sourcing advisers TPI. The total value of new (as opposed to renewed or restructured) outsourcing contracts in the US$25 million plus bracket -- where most significant outsourcing activity occurs -- is US$5.4B, an increase of 100% on the first half of 2006. This strong Asia-Pacific performance is in sharp contrast to a modest overall global increase in new business of just 6% in the first half of 2007.

Arno Franz, Managing Partner for Asia-Pacific Region at TPI, explained: “Traditionally the Asia-Pacific outsourcing market has been seen as relatively immature in contrast to the Americas and European markets and thus prone to peaks and troughs in activity. However a strong performance in the region in 2006 has carried on through the first half of 2007 and we have seen three straight half-years of growth in new business demand. There are signs that the Asia-Pacific outsourcing market has steadied. Indeed strong growth in Asia-Pacific and Europe is compensating for a very soft US market, where new outsourcing business is at its lowest level since 1994.”

The Asia-Pacific performance has been further impacted by an increase in global share of mega relationship volume and value. Asia-Pacific mega relationships, those transactions with an average annual spend, of US$100M or greater, represented 23% of the global total and 23% of global value, an almost doubling of share by both measures, at the expense of a sharp decline in mega relationship activity in the Americas.

Eight BPO contracts, in the US$25 million or greater category, with a total contract value of US$700 million were signed in Asia-Pacific in the first half of 2007, representing growth of 33% by volume and 133% by value compared to the first half of 2006.

* Inclusion of offshore delivery in outsourcing deals hits record high

Despite TPI’s observation of an increase in offshoring through captives, the use of offshore service delivery within the scope of outsourcing also continues to expand. In the first six months of this year, 59% of the deals on which TPI advised entailed at least partial delivery offshore -- the highest percentage ever.

* Telecoms sector leads the way in Asia-Pacific Outsourcing as financial services contract value declines

Over the last five years the financial services sector has accounted for 28% of global TCV for contracts valued at over $25M, and 38% of Asia Pacific TCV. In the first half of 2007, despite a 34% share of global TCV, financial services sector had just 9% of Asia Pacific TCV.

Telecoms sector is the most prolific sector for outsourcing in the region in 2007 to date. Traditionally a strong player in Asia-Pacific, Telecoms took a 46% share of first half TCV in 2007, compared to a 33% average in the previous five years. However, this overall performance was strongly impacted by the China Mobile mega deal.

Other sectors showing increased outsourcing activity in the region include Manufacturing with a 26% share and Energy with 12% of 2007 TCV, compared to just 1% in the previous five years. Deregulation of the energy industry in the region is providing opportunities for outsourcing as companies seek to variabilise their cost structures and become more competitive.

Wednesday, July 18, 2007

Best Practices for Dev Outsourcing

Source: Reddevnews

Some useful guidelines for choosing the the right IT partner.

When you need to launch a new software development effort, time is of the essence. You need skilled software engineers to hit the ground running and deliver immediate value. You don't have the luxury of unlimited time and budget to recruit and hire the best IT talent in the business, so you turn to an outsourcing partner.

But how do you choose the right IT partner? Here are some guidelines for choosing a software development partner, and smart questions to ask to ensure you'll "get it right" the first time -- and avoid costly mistakes.

Choose a software engineering firm -- not a resume database.

All too often, IT outsourcing firms are little more than temp agencies, many of them managed by sales and recruiting professionals, not software engineers. If you ask for a .NET programmer with SQL Server experience to build an e-commerce application, the request triggers a keyword search in their resume database that yields potentially dozens of candidates.

Look for the firm's renewal rates -- a key quality indicator.

If an IT partner truly operates as an extension of its client, it'll be asked to come back again and again. The reason why IT firms win renewals has everything to do with the quality and consistency of their engineering staff. If the firm assigns solely contractors or 1099 staff, the individuals will have little loyalty or commitment to their employer.

When clients renew their IT partners, they typically want the same people who did great work for them before. The top-tier firms typically provide generous benefits and compensation packages, even stock ownership plans that motivate their top people to stay with them for the long haul.

Know the hidden costs of offshoring.

It sounds like a simple choice -- the difference between paying $90 to $125 an hour versus paying $20 to $40 an hour. That's the typical difference between a U.S.-based software engineer and an offshore developer from India, China or other lower wage countries.

Unfortunately, it's not an apples-to-apples comparison. Time zone issues, language barriers and cultural differences are the three biggest hurdles facing companies using offshore service providers, according to research firm IDC.

The fact is, offshoring can be a smart choice if you have the ability to clearly document and package your requirements in detail. The danger is that you'll get exactly what you ask for, which can be problematic. Because of cultural resistance to questioning authority or simple language differences, you may get a very literal interpretation of your request, with no thoughtful pushback.

If you have a large development project requiring 25 developers or more, and if you have a mature, well-worn software application with requirements that can be easily captured and documented, the economies of offshoring are well worth it. A $25 hourly rate is significant when you have 100,000 hours of development work.

Beware of fixed time/fixed pricing projects.

The attraction of fixed-bid pricing is clear. The alternative, pricing by the hour, conveys the uncomfortable impression that the meter is endlessly running, with incentives for the outsourcing firm to prolong the project. And when the budget for software development is $150,000, no one wants to tell the boss the final price tag might be $175,000.

If the agreement is truly a fixed bid arrangement and the client won't approve any overages, the outsourcing firm has to make some hard choices. As the end of the project approaches and it becomes apparent that it'll require more effort than was estimated, the vendor is pressured to pull his high-priced "rock stars" off the project and assign more junior staff to keep the project profitable. In the end, the fixed bid isn't such a bargain after all.

In an ideal world, the software development partner will be motivated to do the best work possible as efficiently as possible, while respecting the client's budget. By doing early prototyping to clarify the project's objectives, the outsourcing partner should be able to estimate the hours required to do the job, plus or minus 10 percent, while clarifying the areas where there might be potential trouble spots.

India Outsourcing Giant Battles Volatile Market Conditions


Despite a challenging environment marked by wage increases and the negative impact of an appreciating currency, India outsourcing giant Tata Consultancy Services (TCS) delivered impressive results in what it called a volatile quarter.

TCS (VARBusiness500 rank: 32), India's largest IT services organization, reported a 55 percent increase in earnings to $291 million on a 42 percent increase in sales to $1.3 billion for its first fiscal quarter ended June 30 compared with the similar quarter one year ago. TCS said it was able to maintain net margins through cost management, productivity increases and hedging gains.

TCS' strong showing comes with outsourcing rivals like EDS and Computer Sciences Corp. (CSC) expected to post single digit sales growth for the similar quarter. For example, EDS is expected to post a four percent increase in sales to $5.41 billion compared with $5.19 billion, according to a survey of analysts by Thomson First Call. CSC, meanwhile, is expected to post a 5 percent increase in sales to $3.76 billion compared with $3.55 billion in the year ago quarter, according to a survey of analysts by Thomson First Call.

At least at this point, TCS is not seeing a sales falloff in the wake of concerns that outsourcing is becoming more costly (witness the rising salaries of offshore workers)more difficult to sustain (language barriers are often at the root of that problem).

"Over the last two to three years, there has been a tendency among U.S. corporations to see the value of outsourcing, especially to destinations like India," says Pradipta Bagchi, spokesman for TCS.

In fact, seven out of 10 of companies on the Fortune 100 use TCS for some type of outsourced service, whether that's for business process outsourcing (BPO), infrastructure services or consulting. The reasons for the integrator's popularity Bagchi explains, is threefold: global expansion, increasing Indian labor force and cost.

In the last quarter, the company opened its Mexico Global Development Center; TCS has more than 150 clients and in excess of than 5,000 professionals in 14 Latin American countries. The center is strategic for furthering its success in the United States as well as for forging new markets in Mexico and Latin America.

"Our centers in Latin America speak Spanish and Portuguese," says Bagchi, "and our new center in Mexico serves not only that country but also U.S. businesses that have a need for Spanish-language services. It can also serve as a 'near-shore' center for U.S. companies because of its English capabilities, and it is in a more favorable time zone than our centers in India." Companies have made it clear that while it is advantageous to have some work done during the overnight hours in the U.S. "

That high demand continues to fuel the attractiveness of engineering degrees in India. "Countries are not finding the number of technically skilled employees in their own home," says Bagchi. "[India] will have 400,000 engineering graduates this year."

Acknowledging that salaries are on an up-tick, Bagchi says many businesses are moving out of Bangalore, for example, and into "tier two" cities.

"The economic boom in India has led to the growth of airlines within the country," he says. "So it is feasible to fly into and out of these towns now where it wasn't possible before." These towns are not as developed as the larger cities and salaries are not as competitive.

For Tata, the challenge for the future will be in continuing to attract talent while keeping the value proposition attractive to customers. That may take a bit of globetrotting for Tata and other outsourcing firms, as they continually seek low-cost labor to meet high-tech needs.

Tuesday, July 17, 2007

Outsourcing contracts slow in 2007

Source: Computerworld

Global deals declined in the first half of the year

A 25 percent drop in new contracts and a 17 percent decline in restructured contracts indicated 2007 could be a slow year for global outsourcing companies.

Researchers at TPI recently released its TPI Index analysis of the global outsourcing market for the second quarter, and the found that deals have dropped considerably when compared to the same time last year. To start, one-quarter fewer deals have been signed midway through the year than in 2006, and the average total contract value (TCV) of deals so far in 2007 is about 34 percent less than deals in the same time last year.

TPI reports the average TCV, about US$33 million, is the smallest first-half award values since 2001. Another metric, the annualized contract value (ACV), is down 30 percent from last year's figures as well, at US$5.5 billion. Existing deals also saw a downturn. According to TPI, restructured contracts -- defined as "renewals, renegotiations and related changes to prior contracts" -- accounted for 26 percent of all sourcing agreements last year, but so far in 2007 contract restructurings represent only 17 percent of the larger market.

Not only are fewer deals being signed, the value of the deals is dropping as well, TPI reports. The TCV of new deals -- 56 contracts in the Americas, down from 86 in the first half of 2006 -- is US$10 billion, significantly less than last year's US$24 billion and the lowest first-half TCV value since 1995, the advisory firm says.

The drop in deals could indicate outsourcing vendors are facing some stiff competition from offshoring options, TPI says.

"Offshoring appears to be competing with outsourcing, with clients electing more frequently to adopt offshoring strategies rather than outsourcing," said Peter Allen, partner and managing director of Market Development at TPI, in a press release. "This is placing pressure on outsourcing providers to take it to the next level and look beyond just providing cost savings, a front on which they struggle to compete, to give clients more of what they are looking for -- value-added solutions and innovations such as specialized skills and process expertise."

Despite the slow first half, TPI says it expects outsourcing will grow about 5 percent this year, attributed mostly to new scope and the lack of large-scale contract terminations. For instance, one bright spot for outsourcers this year came in the form of new contracts.

According to TPI, the average contract value for these new deals rose 20 percent, while the level of new scope contracts remained flat with last year. Overall, the first half saw US$28 billion in new scope transaction, "which are important bellwethers of where the outsourcing industry is headed," TPI reports.

Outsourcing security doesn't always add to risk and can reduce costs

Source: Itbusiness

Outsourcing security is a touchy subject for CIOs.

Surveys indicate more than 50 per cent of CIOs say they will “never” outsource security. The most frequent reason given is that it's too risky to trust a third party with information security. Unscrupulous behavior on the part of outsourcer employees could have devastating consequences. In this view, outsourcing security is indeed an oxymoron. But is your risk really any lower with employees?

Outsourcers promise their security services will be better than those available in-house. However, CIOs will be nervous about the expertise and turnover among the outsourcer's security management staff. But can you reduce these problems with company IT staff?

Outsourcers insist their security services will be less expensive. However, CIOs will be skeptical based on examples of unhappy cost experiences with outsourcing other IT functions. But haven't we learned how to manage outsourcing better?


How does a CIO know that the risks associated with working with a MSSP are really lower than the risks associated with an in-house solution?

Implosions of MSSPs like Pilot and Salinas Network Services as well as recent acquisitions have heightened the CIO's sense of vendor risk.

First, the risk associated with MSSP upheaval can be largely mitigated by a carefully executed vendor selection process. Can your hiring and management processes similarly lower the risks for an in-house solution?

Second, despite all the attention given to external hacker attacks, up to 80 per cent of attacks and data leaks occur inside the network. Can your in-house staff respond to internal attacks better than the MSSP staff?

Service Quality

How does a CIO know that the benefits associated with working with an MSSP are really higher than the benefits associated with an in-house solution?

First, the variety of functions associated with security management keeps growing. Once companies did little more than reset passwords, monitor firewalls, delete e-mail spam and zap viruses and worms. Now spyware, more sophisticated hacking, intrusion detection and prevention, phishing, web scams, identity management, compliance reporting and patch management need increasing amounts of attention. Can your in-house staff rise to meet these demands?

Second, attacks against a single company don't happen often enough to keep a team of this caliber focused, engaged and challenged. MSSP staff gain more experience than in-house staff through their encounters with many security problems among their many clients. How can you provide your in-house staff with the experience they need?


How does a CIO know that the costs associated with working with an MSSP are really lower than the costs associated with an in-house solution?

CIOs worry that contracting with an MSSP may result in cheques paying for big bonuses and fancy perks for various executives or for travel.

However, in-house staffing for security expertise 24 hours a day, 365 days a year, requires five full-time employees plus supervisors and backup personnel. Even if your company can afford these people, could you find and retain them in today's job market?

Security management requires an investment in computing infrastructure, software and telecom capacity. MSSPs can amortize some of these costs across all their clients. Can you justify these costs solely for your company?

Despite concerns about trust and memories of other outsourcing deals gone bad, CIOs will outsource more security management functions in the future. The shortcomings and costs associated with operating in-house security management preclude it as a viable alternative.

Monday, July 16, 2007

Aiming higher

Source: Thehindubusinessline

Indian software players are going for high-end action in the global gaming market. Alongside opportunity, there are hurdles too.

Indian players are gearing up to garner a sizeable share of the $29-billion global gaming market. And they are seeking to do this by showcasing firepower to turn into co-producers of high-end games rather than being mere associates for ‘grunt work’.

The transition, from small time work such as porting and texturing to tech-intensive 3D asset creation, graphic designing and testing, has begun to take place, say industry watchers. (Porting is the process of adapting software so that a program can be created for a computing environment different from that for which it was designed. The term also refers to changing of software/hardware to make them usable in different environments. Texturing or Texture mapping is a method to add detail, surface texture, or colour to a computer-generated graphic or 3D model.)

Case for outsourcing

Game development is one of the most complicated parts of software development. Unlike ordinary applications, game development requires completely updated resources that include state-of-the-art infrastructure and workforce, thereby making it a costly affair.

Intense competition to reach the marketplace faster, coupled with rising production costs, has propelled international gaming companies to look at the outsourcing model, says Tapaas Chakravarti, Chairman and Managing Director, DQ Entertainment Ltd. The Hyderabad-based company develops games for consoles such as Xbox and Playstation.

Developing a game in the wireless space could warrant a budget anywhere between $5 million and $20 million. “Globally, budgets in the console game development space are upwards of $20-25 million, which is four times what it was a few years ago,” says K. Rajesh Rao, CEO of Dhruva Interactive, a Bangalore-based gaming content provider. Dhruva has a tie-up with Microsoft to develop games.

The growth of games and their budgets has upped manpower requirements multi-fold. Team sizes across the globe have been growing sharply. Big budget games have 100-plus dedicated personnel working for 18-24 months.

Requirements from India

According to a Federation of Indian Chambers of Commerce and Industry (FICCI) report, animation, gaming and virtual special effects are the biggest export revenue generators for India after software. Game exports could include both providing outsourcing services and delivering the final product to global audiences.

“Both models have tremendous potential for India to earn in foreign currency terms if we move up the value chain,” the report says.

There are five main departments in a game company: Art, Design, Programming, Sound, and Support.

Indian gaming companies so far have been doing small time work, such as porting for online games and character building, and texturing for the console space. “Outsourcing the graphics designing component of mobile and wireless games has picked up due to higher usage of animation in games. Companies have also started outsourcing game testing and 3D asset creation in the online space,” says an analyst. This is also happening in games that require specific platforms or are device-specific and need a high degree of customisation. The forecast, for now, is: Online, PC as well as Console game outsourcing, will be major growth engines for the industry; the mobile is expected to catch on in a few years’ time.

Huge market potential

The scenario looks very encouraging given the international gaming market is valued at $29 billion annually and is set to touch $50 billion by 2011, according to research from PricewaterhouseCoopers.

Outsourcing to destinations such as India will be a $2.49-billion marketplace by 2010 from the current value of $1.1 billion, according to media firm Screendigest. It pegs the percentage of global development expenditure outsourced to rise to 37.1 per cent in 2010. Video games are predicted to hit $42 billion in revenue by 2010, and game outsourcing will be a significant part of that. Nick Gibson, author of the Screendigest report, says that the value of the outsourced art sector alone is set to soar to over $600 million by 2008.

Indian gaming companies have managed to scratch only 5-8 per cent of this ever expanding pie, according to Rajiv Hiranandani, Country Head-India, Mobile2win, which has developed games for Freemantle and the Turner Group. “India’s share of this market could grow to 20-30 per cent in the next couple of years,” says Rao.

Skilled manpower shortage

Overseas players may have begun pampering Indian vendors, but the domestic firms have to contend with rising shortage of skilled manpower.

The FICCI report says animation, gaming and special effects are areas where manpower demand far outstrips supply. “It is estimated that in the next few years, India will require more than 30,000 trained animators and gaming professionals.” A good game needs an exciting blend of creativity, design, and programming. Building teams with such talents is no easy task. And to compound the issue, attrition rates in the gaming industry are as high as 22-25 per cent.

Government support

Another bottleneck is the lack of recognition and support from the government. Asian competitors such as Korea, China, Japan and the Philippines receive tremendous impetus from the government by way of finance and infrastructure. Hence these countries have developed very strong domestic markets.

India’s domestic gaming market was only worth $13 million in 2006, according to analyst group iSuppli. FICCI believes that once the domestic market receives enough consumable content, the same can be routed for outsourcing and exports.

As Rao puts it: “We have to create a model that will ensure tighter collaboration between the government, industry and gaming institutions for this space.”

The future looks bright as schools focused on game design, programming, and art are appearing everywhere in India. Institutions such as Arena Multimedia and Sage Infolabs provide education in the concepts of animation, game development, game content design, game engines-driven development and other aspects.

To establish a position of supremacy, it is imperative for Indian game providers to make large dollops of investments in building end-to-end solutions and putting together a sizeable manpower base. And the rest, as they say, will fall in place.

Thames Water seals extended outsourcing deal


Xansa contract covers management of 700,000 customer interactions

Thames Water has extended a business process outsourcing (BPO) contract with Xansa in a 12-month deal, which will include outsourcing to India.

Xansa, which handles around 700,000 customer interactions a year for the utility, will continue to manage the back-office processes of metered billing exceptions, customer correspondence and general actions, allowing Thames Water to focus on customer service, cost, quality issues and compliance.

In a bid to increase efficiency, part of the service will be outsourced to India.

Mike Tempest, customer services director at Thames Water, says Thames has worked with Xansa for 18 years.

‘We have a highly successful, integrated delivery approach to service provision. It also allows us to continue to free up resources for deployment elsewhere within our organisation. The flexibility of the solution enables us to respond effectively to the seasonal variations in the demand for customer services,’ said Tempest.

The renewal of the BPO deal will take the contract duration to the six-year mark.

Saturday, July 14, 2007

More Firms Setting Up Own Offshoring

Source: Businessweek

With many companies now choosing to conduct offshore operations themselves, the global outsourcing market has suffered a slowdown.

The increase in the number of organisations setting up their own 'DIY' offshore operations in countries such as India is responsible for the slowdown in the global outsourcing market.

The value of new outsourcing contracts globally has risen by just six per cent for the first half of 2007 compared to the same period last year, according to the latest quarterly market update from outsourcing advisers TPI.

The slowdown is particularly bad in the US where the value of new contracts is down by almost 50 per cent this year, with only €6.3bn of contracts for the first six months of 2007 - the flattest six months of outsourcing activity in the US since 1994.

Duncan Aitchison, MD at TPI, said in the quarterly update that part of the reason is a rise in the number of organisations doing 'DIY' offshoring.

He said in the quarterly update: "We believe the slowing of growth in the global outsourcing market is driven by the fact that offshoring to a wholly owned captive operation, or tactical out-tasking of small, discrete processes, is currently considered an alternative to outsourcing by some client organisations looking for short-term cost savings."

Offshore IT outsourcing is also still on the increase and the TPI figures show 59 per cent of deals in the first half of the year had at least partial offshore delivery.

The increase is on the back of growth in the continental European market in Belgium, Denmark, Finland, Italy, Norway and Switzerland, and Europe now accounts for more than half (54 per cent) of new outsourcing contracts signed globally.

Much of this demand is coming from the banking sector. Globally financial services is still by far the largest private sector market for outsourcing, accounting for more than a third (35 per cent) of total contract value this year.

The increase in Europe has also been driven by five 'mega deals' totalling €5.3bn and four of these deals have been for network, rather than pure IT, outsourcing.

This demand for network outsourcing has pushed some of the telecoms providers such as BT up the overall global outsourcing rankings. The 'big six' outsourcers - Accenture, ACS, CSC, EDS, HP and IBM - accounted for just 10 per cent of the €7.8bn global spend on 'mega deals' in the first half of this year.

IBM Talking to Vodafone Unit for India Outsourcing

Source: Pcmag

IBM aims to grab more outsourcing deals from Indian telecoms companies and is in talks with the Indian unit of Vodafone Plc, a senior official said.

India is the world's fastest growing mobile market, adding more than 6 million users a month, and telecoms companies are stepping up investment on technology. India had 130.6 million mobile subscribers on the popular GSM platform at end-May.

"My feeling is that in the next 18 months, at least two more operators should be settling for outsourcing," Vivek Gupta, director of communications sector at IBM India and South Asia, told Reuters in an interview.

"We would be extremely disappointed if we are not the key player there. From my perspective, I want to grab 100 percent of the business."

International Business Machines Corp. of Armonk, New York, is in talks with unlisted Hutchison Essar Ltd., in which British phone firm Vodafone bought a controlling stake this year, for an outsourcing deal, Gupta said.

Last year, Vodafone outsourced key IT functions to IBM, the world's largest technology services company, and Electronic Data Systems Corp..

IBM, which employs 53,000 staff in India that accounts for 16 percent of its global workforce and makes it the company's second-largest operation after the United States, has been winning large telecoms outsourcing deals in India.

In March, India's fifth-largest mobile phone firm, Idea Cellular Ltd., signed a 10-year pact to outsource some of its operations like managing IT infrastructure and billing services to IBM in a deal valued at up to $800 million.

IBM had signed a 10-year, $750 million, deal in 2004 with top mobile services firm Bharti Airtel to manage its IT infrastructure. It is now estimated to have gone up to about $1.5 billion due to robust growth in Bharti's subscriber and revenue. IBM's business in India grew 37 percent in 2006, making it the company's fastest-growing country operation, as telecoms, banks and government departments ramped up spending on computer hardware and services.

Friday, July 13, 2007

Get accurate with Accounting Outsourcing

Source: Sbinformer

Spending hours on drafting and redrafting the accounts books of your business can try out your patience. Moreover checking each of the transactions can also consume a lot of your time, resulting in exhaustion and irritation. Accounting is just no child’s play and requires tremendous amount of expertise and accuracy. Moreover maintaining accounts is indeed a tiresome process, wherein most of your time you will need calculate and recalculate your transactions. But then this entire tedious process can not even be overlooked as maintaining a daily and accurate hard copy of your financial transactions is something that helps in determining the financial standing of your business. This further helps you to determine the graph of the profit or the loss that your firm is experiencing. Despite knowing the fact that maintaining accounts is an important task, you might be short of people who have proficiency in this field and can handle the work efficiently. In this scenario the best solution you can opt for is accounting outsourcing. In fact accounting outsourcing could help you solve all your problems and queries related to the accountings of your firm.

Any business firm, whether a large scale one or a small scale one, should be crystal clear while stating their financial transactions. This can only be done if the regular accounting work and financial reports are made precisely. This precise accounting work does call in for the investment of apt professionals who have thorough connoisseur in their work. Considering this fact you can always have an upper hand by adopting accounting outsourcing services. Considering accounting outsourcing services for your business will not only guide you and your business towards the right path of accounting, but will also help you in delivering the best and the most accurate accountings.

While you plan to adopt the accounting outsourcing services offered by an accounting outsourcing vendor or firm, you will have to look in through some details of the accounting outsourcing firm. The things that you will need to consider when selecting an accounting outsourcing firm are the authenticity of their organization and their work, the work experience and the expertise that they have in the field. Moreover you will have to understand the requirement of your business and then accordingly look out for an accounting outsourcing firm that suits your business requirements.

As accounting is a very sensitive issue you must make sure that you keep a track on the work of the accounting outsourcing firm that you have hired for your business. This will not only help you to stay up to dated with the work but will also help you to understand the work of accounting with more accuracy and expertise.

Offshore outsourcing: The latest mileposts

Source: Zdnet

Infosys Technologies reported its fiscal first quarter results on Wednesday and provided a few notable data points on the state of offshore outsourcing. First off, Infosys was dinged a bit by the strength of India’s currency, the Rupee vs. the U.S. dollar. This development isn’t too surprising since the dollar is weaker against most currencies these days. In any case, Infosys had to trim its outlook. For the quarter ending June 30 the company reported earnings of 46 cents a share on revenue of $928 million. Revenue was up 40.6 percent from a year ago.

Instead of currency worries there were a few notable items that stood out on the Infosys conference call. We’ll see if these topics surface again as other offshoring firms such as Wipro report earnings.

Here’s a look at some of the offshore outsourcing developments mentioned by Infosys:

North American companies accounted for 62.6 percent of revenue for Infosys with Europe representing 26.8 percent. If Infosys can get its Europe revenue up its Rupee problems will go away quickly. Don’t be surprised if Infosys starts pushing for more Europe deals.

By service, development and maintenance accounted for 40 percent of revenue. Package implementation was 18.4 percent of revenue with consulting bringing up the rear at 4.9 percent. Financials services was 36 percent of revenue followed by telecommunications at 22 percent.

Infosys has 509 clients with 285 of them with deals worth $1 million. There are 113 $5 million customers and one customer paying Infosys more than $200 million. Infosys has eight customers paying Infosys more than $8 million.

More work is being conducted on customer sites. Here’s what CEO S. Gopalakrishnan had to say about the on site/offshore mix when asked.

"Around 50% is the ideal onsite/offshore ratio because you still need to remember that we have tax breaks in India and we have significant benefits because of that. I think when 2009 comes, 2010 comes, as some of the centers we have in India come off the tax holiday, then we need to look at what is the ideal onsite/offshore mix because today the significant driver will be based on the tax holiday we have."

Captives (offshore sites wholly owned by companies) aren’t doing well.

Generally, captives are not doing so well in India. Forrester have put out a report that said 60% of the captives are actually not meeting its goals, have not given the value benefit expected. Costs are higher. Attrition is very high, etcetera. So, generally, captives are not actually doing that well. Captives are an opportunity for us to look at integrating with Infosys, taking over that and running it for the clients etc.

Thursday, July 12, 2007

Konica Minolta Opens Software Development Center in India through Partnership Agreement with HCL Technologies

Source: Japancorp

The Konica Minolta Group (TSE: 4902) opened an offshore development center in India today under a partnership agreement concluded with HCL Technologies Ltd. (HCLT), a leading Indian IT service provider. The expansion of the network environment and diversification of applications have led to an increase in the number and kinds of software applications necessary for the development of multi function peripherals (MFPs) and printers, major products of Konica Minolta's core office equipment business. The increase is almost equal to that of cellular phones and digital home appliances, and it is likely to continue rising at an annual rate of about 50%. In the light of this, Konica Minolta has been exploring the commencement of offshore software development to ensure a stable supply of software development resources.

This is one of the important group-wide management issues of its medium-term business plan, "FORWARD 08."

India is renowned worldwide for its ability to develop quality software products and HCLT, in particular, boasts a wealth of experience in developing software products for a number of major U.S. and European companies. Konica Minolta, highly valuing the technical excellence and management skills of HCLT, has been outsourcing HCLT to develop software for its medical systems over the past years, and a relationship of trust has been built between the two companies since then. Because of this, HCLT was Konica Minolta's top candidate for partnership as it explored the possibility of offshore software development. Under the partnership agreement, Konica Minolta's offshore development center has been built within HCLT site. In the beginning, the center is staffed with about 50 workers, but that number will be increased to 240 or so by the end of FY2008.

The offshore development center will work on the development of application software for MFPs and printers, development tools for customization, and software to be built in computed radiography?Konica Minolta's major medical product.

Meanwhile, Konica Minolta will focus most of its domestic development resources to the development of its core technologies, such as image processing technology, Konica Minolta's proprietary technology that cannot be outsourced, as well as basic product functions. In so doing, the company aims to enhance its core technologies and accelerate the development of new products that incorporate those technologies.

Through this new three-pillar structure -- development of core technologies in Japan, development of application software in India, and quality assessment in China, Konica Minolta will improve the quality and efficiency of software development and accelerate the development process, thereby further strengthening its business structure.

NASSCOM highlights offshore pitfalls


The chairman of the National Association of Software and Service Companies details how 85 per cent of businesses in the UK and US currently not outsourcing effectively can change their ways.

Despite the perceived benefits of outsourcing parts of a business' IT infrastructure, particularly to offshore destinations that have the scale and expertise to focus on specific tasks, the majority of enterprises are being held back by the fear of getting it wrong.

So says Dr Ganesh Natarajan, vice chairman of the National Association of Software and Service Companies (NASSCOM) and chief executive of Zensar, who hosted a recent roundtable debate about getting global outsourcing right first time and how to alleviate some of the outsourcing concerns many businesses have, such as losing control or adversely impacting quality.

Today, less than 15 per cent of the global market is reaping the outsourcing model advantage, with 85 per cent still adopting a wait and see attitude from the sidelines," he said.

"The challenge over the next five years is for organisations and the outsourcing vendors to honestly address a number of questions in the minds of prospective outsourcers, these include: application control, quality of service, ROI, service provider process overhead, cultural mismatch and the consumer experience. By working collaboratively, companies will not only realise the traditional benefits of cost and quality, but will also be able to achieve an even greater competitive advantage at a global level."

While India is the predominant location of choice for offshoring, other countries are gaining in popularity, most notably China and the Philippines.

One of the main issues cited by companies who haven't embraced the offshore outsourcing model is the fear of handing over control of the business and its data to people so far away.

"It's not just about outsourcing offshore. We can talk to an organisation's management and walk them through how they should potentially be outsourcing. They could do work onsite in the UK or nearshore in places like Poland or take work further offshore to India, China or Brazil, where we're hoping to set up a centre later this year," he said.

Transparency in outsourcing, whether that be onshore or offshore, is also key to success, advises Grewal.

"You need management buy in and lower down the chain as we all know lots of people who I what I call 'the invisible stoppers' who will say yes to your face but won't ever let those projects be successful, especially when it comes to outsourcing," he said.

Wednesday, July 11, 2007

Outsourcing's dirty little secret

Source: Intergovworld

Outsourcing has been a part of IT for more than 20 years. During that time, outsourcing models have changed dramatically, but the fundamental strategy has always been the same--arbitrage. Arbitrage is basically taking advantage of price differences for similar products available in different markets. You buy low in one market and sell higher in another.

The dirty little secret about these old outsourcing models is that, like all arbitrage activities, the opportunity eventually disappears as markets adjust to changing conditions.

It's time for a New Deal in outsourcing that offers a permanent solution, not a temporary fix, to the most pressing problems CIOs face today--waste, security, flexibility. It's time to fundamentally change the way businesses buy servers, disk drives, networks and desktops.

Operations Arbitrage--Your Mess for LessIt's time for a New Deal in outsourcing that offers a permanent solution, not a temporary fix, to the most pressing problems CIOs face today...Text The early days of outsourcing focused on data center operations. Businesses were competing for scarce skills to run their IT shops. The demand for these skills caused the price to go up. An arbitrage opportunity existed to apply these expensive and underutilized skills across a larger number of businesses.

A similar arbitrage opportunity existed from a data center and equipment perspective. It cost less per data center square foot, server cycle, storage gigabyte and network circuit when you bought in large quantities. But most businesses did not need that amount of IT resource. If businesses could consolidate their demand, they could get a better price for a shared resource.

Employee Arbitrage--A Band-Aid Approach

During the last ten years, powerful networks and a more educated global IT workforce have enabled employee arbitrage where low-cost, highly trained application development resources in one country can be made available to a distant country where similar resources cost more.

While there were many management, cultural, social and political issues associated with this model, the economics were compelling--50 percent to 75 percent savings for the same skills. Companies like Wipro, Infosys and Cognizant emerged to offer U.S. companies deep engineering and application development skills at a fraction of the cost of those skills purchased locally.

IT Utility Services--A New Deal for Business

IT utility services represent a New Deal in outsourcing that's not an arbitrage opportunity, but a fundamentally new way to deliver IT infrastructure. With IT utility services, businesses stop worrying about what "boxes" to buy and start focusing on the applications that drive their operations, generate customer value and create competitive differentiation. All the server, storage and network capacity you need is available as an on-demand service, not as a bunch of boxes.

Why is there such excitement about utility services? Because it solves some of the pressing problems in IT today: Waste How many IT departments congratulate themselves for negotiating a 1 percent higher discount on a server that ends up running at 20 percent capacity? The problem isn't pricing, it's waste. Prices keep dropping on computers and there is more than enough competition to ensure you get the best price on technology. But, pricing cannot fix the waste problem. With utility services, you buy only what you need and pay only for what you use. Utilization is maximized and waste is eliminated.

It's Time to Get Started

Utility services are a New Deal for IT, but luckily it's not an "all or nothing" proposition. You don't have to throw away what you have in order to integrate utility services into your IT architecture. You can start with a single application or business unit and then gradually migrate the rest of your application portfolio and your business units to the utility platform. No changes are required to your application code.