BPO |Update| Issue 49 Fears
on outsourcing exaggerated: WTO Offshoring
is still the growth mantra for Indian IT Deloitte
moves back to its advisory roots India
IT services mkt grows 26.7% in 04-05 Alden
Prepress expands into KPO space Outsourcers
play down security risk (United Kingdom) F&A
BPO throws up challenges, opportunities Attrition
rates become biggest offshore concern Chennai
cos sell BPO stake to UK partner Gecis
to set up business center in Romania Faulty
cable trips Pak's BPO dream Acclaris
India
arm to boost staff count Prepared by
Outsourcing of computer and information services (CIS) to
countries like India, Ireland and the Philippines by developed countries is
neither a harbinger of high levels of employment in the host countries nor of
massive loss of jobs in the latter compared to the overall employment market in
the countries concerned, according to the World Trade Organization (WTO).
"Most of the expectations and fears related to the size and dynamics of
offshoring of IT services are exaggerated. At present, the impact of offshoring
services jobs is far stronger in the popular perception than on actual
production, employment and trade patterns,'' says an `essay' on offshoring of
services released as part of the WTO's annual World Trade Report 2005.
Emphasizing that the rationale behind the outsourcing of services is the same as
in the case of merchandise or physical goods, namely, comparative advantage, the
essay has brought out the incompatibility and ambiguity in statistics on BPO)
that are cited by governments, global consultants and industry associations like
India's Nasscom (National Association of Software and Service Companies).
The WTO says that in the case of India, the most dynamic component of services
offshoring "is not within the high-skill-intensive IT (information
technology) sector but in the generally low-skilled business services sector.''
Even the "broadly defined IT sector'' (namely, combining both IT services
and low-end IT-enabled services like call centers and medical transcription),
accounts for less than 0.25 per cent of the employed Indian labor force.
However, "there are pockets of relatively high-skilled services being
offshored to state-of-the-art firms, for example, in India or South Africa,'' it
says.
With only a small section of outsourced jobs being high skilled, there would be
a negligible negative impact on high-skilled jobs in the developed countries.
The WTO says that while the U.S. and the U.K. are the leading outsourcing
countries, the success of India and Ireland in attracting offshoring business
has been partly attributed to the English-speaking workforce.
Source: www.newindpress.com, www.hindu.com,
July 1st
A joint study done by Bernstein Research and Everest
Research Institute says that offshoring remains the key to success for Indian
companies
Indian IT companies that use offshore capabilities receive higher margins
and benefit from increased free cash flow. This is the finding of a new joint
research done by US based Bernstein Research and Everest Research Institute.
According to the research report, offshore outsourcing is increasingly becoming
the key to fundamental supplier economics. Offshoring is driving growth and
profitability among the large IT outsourcing services providers.
Meanwhile, for the purpose of its study, Bernstein Research and Everest Research
Institute grouped the major outsourcing suppliers into three categories based on
their level of offshore adoption. The first group consisted of Indian pure
plays, such as Wipro, Infosys and Cognizant, which have most of their employees
located offshore. The second group had aggressive offshore adopters, such as
Sapient, Perot, and ACS that have been relatively early adopters of offshore
labor. The third group comprised of traditional players, such as IBM Global
Services, EDS and CSC, with a comparatively small, though growing percentage of
their work shipped to offshore locations.
The report found that pure plays achieve higher margins, benefit from higher
free cash flow, and show faster growth. The report also found that 30 percent
growth in offshore outsourcing demand is sustainable for the next three years.
Offshore outsourcing represented just three percent of the $725 billion spend on
global IT services in 2004.
Source: www.ciol.com, July 1st
Deloitte has confirmed of its definitive withdrawal from the business process
outsourcing (BPO) delivery market. While Deloitte will advise clients on BPO
issues, it has abandoned any ambitions to be a delivery player and is selling
its finance and accounting BPO activities to Convergys. Deloitte also looks set
to end its alliance with HP, which never really got off the ground. HP was to be
Deloitte's preferred supplier of all IT outsourcing and BPO, and the two were to
go to market jointly for certain clients, with Deloitte providing consulting and
system integration (SI) expertise, and HP handling the outsourcing delivery.
Overall, Deloitte was at great pains to stress that it's shifting its energies
from the SI aspect of its work towards the higher-value advisory aspect -
becoming 'advisory-led rather than execution-led' as one partner put it.
Deloitte says it may exit some SI market segments if they become unprofitable,
but that it's still committed to SI.
Deloitte's strategy is to position itself as its clients' trusted adviser at
board level, offering independent advice unsullied by the need to feed an
outsourcing machine. So, selling the BPO business - which never really took off
and only accounted for about 1-2% of consulting and advisory revenues - looks
like the right move.
Source: www.ovum.com, July 4th
Emerging markets such as India and China are seen as the
main engines of growth across the region in the next few years, according to
Gartner
The Indian IT services market has recorded the strongest growth at 26.7
percent in 2004-05 for the Asia Pacific region, according to a new research
report issued by Gartner. The Asia Pacific IT services market will have a
compound annual growth rate of 8.9 percent from 2004 through 2009, outpacing the
global growth rate of 6.1 percent
The research firm sees emerging markets such as India and China as the main
engines of growth across the region in the next few years. It also forecasts
that professional services, led by development and integration, IT management
and consulting, will be the region's strongest performing IT services market
segment.
"Improving business confidence, a robust economy growing stronger, improved
availability and quality of infrastructure at a lower cost, increasing MNC
presence driving competition and awareness about strategic benefits of IT
deployment, government initiatives as a facilitator for IT deployment and as a
user of IT and increasing business development activities of global and local
service providers in the Indian market were the key factors that drew growth in
the Indian IT Services market," said Gartner principal analyst - Asia
Pacific for IT services and BPO Ravindra Datar.
"Large number of captive and third party offshore services facilities for
IT and BPO being set up in the country are also driving demand," he added.
According to Gartner, although India's total IT services market will still be
one-third smaller than China at $5.3 billion by 2009, its development and
integration size will be almost the same as China, at around $ three billion.
Source: www.ciol.com, July 4th
Plans to extend high-end servicing to the legal and pharma
industries
Alden Prepress Services Pvt Ltd, a wholly owned subsidiary of UK-based
Alden Group, has entered the knowledge process outsourcing (KPO) space.
Nigel Wyman, executive director, Alden Prepress Services said, "With the
entry into the KPO space, Alden would initially focus on providing high-end
services to the legal and pharma industry and would also set up its own style
and business approach in delivering the same." "By being a KPO
services provider, we would move beyond delivering transcription and content
services and would start activities such as research, preparing technical papers
and presentations, etc.” he added.
Recently, Alden Prepress India won a big contract from a large UK-based
educational institution for preparing e-publishing content services for MBA
course.
Besides functioning from Chennai, Alden had opened its second center in Trichy,
a year ago. “Besides Trichy, we are also looking at other tier II cities for
expanding our India operations by the end of 2006,” Wyman observed.
Alden, headquartered in UK, has a presence in Malaysia and India and would soon
start operations in the US this year. He added that with a total employee base
of around 850 globally, Alden intends to increase its headcount by 50 percent
within next year.
In India, Alden Prepress has been offering solutions to customers on database
management, language editing for electronic and printing products,
medical/business transcription and facility management.
Source: CyberMedia News, July 4th
Offshoring industry moves to calm UK customers' fears
after Indian security breach
The offshoring industry has attempted to allay fears that the recent
security breach in an Indian call centre, which saw UK customer details offered
for sale, was a ‘rare’ occurrence and could be avoided through good project
and data security management.
Following reports that City of London Police are investigating claims that an
Indian call centre sold information on 1,000 UK bank accounts, observers
suggested that lax security in Indian operations could lead to companies
rethinking plans to outsource business processes and call centres abroad.
But industry experts have described the security breach as ‘rare’. National
Outsourcing Association chairman Martyn Hart suggested that such a breach
‘could happen anywhere’. ‘You can never outsource the risk, but you can
try and understand it better and mitigate it.’
He said that, within the processes of an offshored operation, businesses must
make sure that the workers can not access all vital customer information from
one place. ‘If the process is done correctly staff shouldn’t be able to get
all the information, or if they do, then the access should show up on audits or
alerts.’
David Poole, VP of business process outsourcing operations at Capgemini, said
that companies building and managing their own offshore operations don’t put
as much effort into data security issues, instead ‘trusting’ their own
employees.
Some of the world’s largest companies have outsourced business operations to
India. US businesses such as American Express, Citibank, and Merrill Lynch have
offshored, while UK corporates including HSBC, BT, and Prudential are using
Indian operations to deal with customers.
Source: www.vnunet.com, July 5th
Traditionally done in-house and slowly outsourced in parts, finance and
accounting (F&A) is fast becoming a candidate for extensive business process
outsourcing. F&A BPO is a likely area where the strong growth of last year
is likely to continue and even increase: Industry sources say, the total F&A
services by 2008 will be some $114 billion, according to a Yankee Group forecast
made in 2003. Of this, F&A BPO will be $17.2 billion from last year’s
$11.2 billion, the analysts firm forecast, sources said.
It could include a few or all of F&A tasks such as accounts payable
receivables, general accounting, risk management, financial reporting, financial
management, and shareholder services. The first two have formed the bulk of
F&A outsourcing so far.
On the supply front, offshoring BPO is part of a multinational vendor’s
go-to-market strategy from the start - a lesson such firms quickly learnt from
the success of peers such as Texas Instruments and later, Indian firms such as
Wipro.
Accenture, which has seen business in F&A outsourcing for over a decade, is
perhaps the best example of how multinational firms have ramped up in India.
Pakaj Vaish, head of Accenture’s BPO operations in India, says, the firm is
seeing “an ever increasing interest” in F&A outsourcing, and a
corresponding increase in its client base.
The other horizontals included human resources, F&A, payment services,
administrative services, supply chain management, financial services operations,
manufacturing operations, transportation operations, healthcare operations and
telecommunications operations. There were other Indian firms as well, present in
more than one of these, such as Office Tiger and Patni.
Source: www.business-standard.com,
July 5th
Despite all the recent media attention heaped on security
breaches at Indian business process outsourcing centers, the main headache for
many of today's offshoring customers is the escalating rate of staff attrition
Competition for skills from indigenous services vendors such as TCS and
Wipro, international players such as IBM and Accenture, and the captive
operations of multinational companies, continue to soar, with the 50 largest
global IT services vendors adding more than 172,000 new staff in India last
year. But with all manner of incentives and increased salary packages being
offered to lure programmers, developers, and consultants from one company to
another, it is increasingly difficult to retain the best people.
David Beaney, who recently retired as director of commercial services at BP,
said quarterly staff churn on the project team had reached 25%, significantly
higher than the 15% employee turnover rate that industry body Nasscom says is
the average for India's largest software services vendors. He said: "This
is a real problem. If it carries on at this rate, there is not going to be
anyone left who knows what they're talking about in a few years time. Good SAP
skills are in high demand."
Another financial services company ComputerWire spoke to at the event said that
in its most recent quarter, it had suffered a churn rate of 23% on the project
team at a third-party Indian supplier running some of its transaction processing
functions. Attrition levels are even worse in India's business process
outsourcing space, with Nasscom putting the average at 30%-plus. The
organization claims that the cost of this attrition in the industry is 1.5 times
the average salary.
BP has 114 full-time employees supporting its SAP system from offshore centers
in India, consisting of 70 from IBM and 44 from Accenture. Once the vendors
began supporting the system from India two years ago, Beaney said there was a
one-year payback on total transition costs, with annual savings of 50%.
Source: www.cbronline.com, July 6th
Ceequence and Swiftmail Communications have sold their combined 28% stake in the
Chennai-based BPO Supersight Ceequence Technologies (SCTL) to UK-based joint
venture partner to set up a new unit. After the exit, Ceequence has invested
$1.5m in a 250-seater facility in Chennai and plans to increase the headcount to
250 in the next three months.
Meanwhile, the UK-based Supersight Group—which now has a 100% control—has
renamed Supersight Ceequence Technologies as Supersight BPO and has announced
similar expansion plans. These moves strike a different note in the BPO sector
widely seen to be in its consolidation phase. Ceequence CEO Rajesh Somasundaram
(who was co-founder and COO of SCTL) said the company would provide full range
of outsourcing services, including in-bound and out-bound voice and web-based
contact centre services. Recently, Ceequence signed deals with a large UK
telecom retailer and other clients in Australia and the US, he said.
Supersight BPO’s COO Paul Henman said the company employ 120 people now and
add 130 more in the next one year. Supersight counts UK-based mortgage
intermediary Cartel Group and travel agency Brightway Travel among its clients.
Supersight is a part of UK-based Foresight Group, a $220 million conglomerate,
with interests in shipping, oil, hospitality, project financing and real estate.
The demerger comes at a time when the BPO industry is seen to be in a
consolidation phase. This year has already seen a number of mergers and
acquisitions. Wipro, for example, merged Spectramind, its BPO subsidiary, with
itslef. Atlanta-based STI, a healthcare BPO acquired Hyderabad-based Symphony
Data in February. ICICI Onesource bought Chennai-based RevIT Systems in April.
Most BPOs look to expand their headcount, while many have indicated the ramp-up
would happen through acquisitions.
Source: The
Economic Times, July 6th
Gecis Global, on Tuesday announced that it will locate its next Business Process
Outsourcing Center in Bucharest, as part of the company's global expansion
strategy.
The company is planning to invest close to $20 million over the next few years
in building its delivery capabaility in Romania.
It becomes Gecis' second such center in Europe after Hungary. The
Romanian facility will handle a variety of complex finance & accounting,
supply chain management, IT, engineering and customer service processes
for GE and other blue chip clients across Europe. In August 2005, the company
will move into 4,000 sq.m of modern office space in north Bucharest's IRIDE
Business Park, where there is capacity to expand to 8,000 sq.m and up to 1,500
employees. Initial employment will be around 170.
The Romania center is expected to significantly expand Gecis' global delivery
capability and make it an even bigger global player. The center will cater to
its European customers, underlining its commitment to serve customers globally.
Gecis already serves 40 countries in 19 languages. Of its 18,000 people, spread
across 27 nationalities, 25% operate outside India, in global locations.
The Prime Minister of Romania Calin Popescu Tariceanu said, "Romania is
both pleased and proud to have attracted this investment by one of the world's
most respected companies. We are eager to show that Bucharest has the talented
workforce and infrastructure to enable Gecis to grow significantly in the
European marketplace."
Pramod Bhasin, President & CEO, Gecis Global, said that, "Our expansion
into Romania is key to the value proposition we give our European customers,
including unparalleled global delivery of services, the highest standards of
process quality, and expertise in more than a dozen industry verticals. I firmly
believe that Romania will provide the intellectual talent we need to provide
unparalleled process excellence to companies across Europe, making them more
productive and enabling them to focus on their core competencies. We are
tremendously excited to be here."
Source: www.indiainfoline.com, July 6th
This could be a major blow to Pakistan’s dream of stealing BPO jobs from
India. A weeklong Internet outage has virtually cut off its fledgling call
centre industry from the world. The crippled sector has now shot off an SOS to
president Pervez Musharraf, seeking his intervention. A British company with BPO
operations in India is already learnt to have dropped its plans of foraying into
Pakistan.
In contrast to our neighbor’s dependence on a single link, India has six
restorable cables with two levels of redundancies built in and three
international gateways. And Indian BPO majors are confident that an outage in
any one link won’t result in any downtime at all.
The submarine cable, the sole international cable link for data and the
internet, developed a fault last week, bringing many businesses across the
country to a halt. A majority of the 8m Internet users are still offline and
online banking, as well as online ticketing of airlines, are suffering. Call
centers are now being provided some relief with back-up satellite links and
their traffic is believed to be routed on priority on the satellite
communications links, with the original link under repairs. However, potential
investors are bound to raise questions on the reliability of Pakistan’s
telecom infrastructure.
The nascent Pakistan industry has only 20-30 call centers employing about 2,000
people with a total revenue of about $15m. The size of the business pales
compared to over $5bn revenue earned by Indian call centers, but operators in
Pakistan have been talking of growing to 10% of India’s size within the next
2-3 years.
Source: The Economic Times, July 7th
Acclaris Business Solutions Pvt Ltd, a wholly-owned subsidiary of the
Florida-headquartered Acclaris Inc, has firmed up plans to boost staff strength
in its Indian operations to 600-plus by the end of 2006. The present headcount
at the company's BPO outfits in Kolkata and Visakhapatnam has been pegged at
194, which is likely to go up to 300 by end-2005. Dipankar Mandal, Founder and
Executive Vice-President, Acclaris said that implementation of the company's
growth plans would entail an investment of about $1 million in infrastructure.
This amount would be generated internally. Already, $8 million had been invested
in the company, including venture capital funding of $5 million from Update
Partners of Virginia. Mandal said Acclaris was focused on providing processing
solutions in insurance and third party administration, human resources
outsourcing, etc. The company has 160 clients in the US, including Fortune 25
companies. Mandal said 80 per cent of the company's transactional revenue
originated in India. The focus in the days ahead would be on going in for bigger
clients instead of too many smaller-sized ones. Negotiations were also under way
to source clients in Canada and Latin America. He, however, declined to divulge
revenue earnings in the year ended December 31, 2004, except to say that it was
in the $4-5 million range. The current order backlog position was indicative of
a 200 per cent growth in this regard, he said.
Source: www.sify.com/finance, July 8th
Abhimanyu Puri, BBA (MAHE) 2nd year
Skyline Business School
Hauz Khas Enclave, New Delhi 110 016
Tel: 2686 4848, 2652 4399
www.SkylineCollege.com