Some analysts forecast an increasing outflow of federal information technology work to private contractors, while others foresee agencies bucking the outsourcing trend because of dissatisfaction with the results. The future of federal outsourcing is unclear, but agencies have begun systematically assessing their employees’ IT skills as they wrestle with the outsourcing question.
In a new outsourcing study, the market research firm Input forecasts a steady flow of federal IT work going to private contractors. Its analysts predict that the annual value of the federal outsourcing market will grow to nearly $18 billion within five years. The company cites the effects of an impending federal IT workforce shortage as older workers retire, the demands of the war in Iraq and a slowdown in federal contract spending as reasons for the increase.
The biggest growth will come in the areas of business process outsourcing and application services, as federal agencies switch to smaller contracts and multisourcing arrangements and away from bigger deals, Input senior federal market analyst Trina Dinavo said.
A self-reinforcing loop is at work in the federal IT outsourcing market, Dinavo said. A contributing factor is agencies’ growing disillusionment with lengthy competitive sourcing procedures required under the Office of Management and Budget’s Circular A-76 rules. Those rules let contractors bid against federal employees for work that is inherently nongovernmental.
“Increasingly, as agencies outsource more core activities, they may not necessarily want to compete business as an A-76 competition when they can multisource to procure needed services at a much faster rate,” Dinavo said.
As lawmakers in the new Congress raise questions about the Bush administration’s competitive-sourcing strategies, agencies will turn more frequently to other forms of outsourcing as the path of least resistance, she said.
But the most important factor causing the outsourcing market to expand from $13.3 billion in fiscal 2006 to $17.7 billion in fiscal 2011 will be a large wave of federal IT workers retiring, Dinavo said.
Federal employee unions and some market analysts, however, say Input’s forecast is off the mark and inconsistent with earlier outsourcing studies.
John Threlkeld, a legislative representative of the American Federation of Government Employees, said Deloitte Consulting reported in 2005 that companies often find that outsourcing is too complex and produces less-than-expected benefits. In many cases, companies have brought their outsourced business back in-house.
Complex trade-offs often outweigh outsourcing’s benefits, according to Deloitte Consulting. Seventy percent of the companies that Deloitte surveyed said anticipated cost savings drove them to outsourcing, but 38 percent of them said they paid additional or hidden costs for services they thought were included in their outsourcing contracts.
The companies that used outsourcing wrestled with trade-offs between service delivery speed and quality of service, and between organizational cohesiveness and improvements in innovation.
Organizations that outsource IT work and the companies that perform the work have conflicting objectives, Threlkeld said. Outsourcing has left the government in worse shape and with less accountability than before the practice became widespread, he said. “Outsourcing is less likely to be a fountain of sparkling wisdom than it is a fetid swamp” of procurement scandals, he said.
Leaders of the new Democratic Congress have signaled their intention to focus on greater government accountability, and officials “will be given to reducing the runaway costs of the fourth branch of government — a vast army of underworked, overpaid contractors,” Threlkeld said. Meanwhile, federal officials say finding reinforcements to replace a retiring workforce is a major concern.
“My highest priority is people — the workforce,” said Shay Assad, director of procurement and acquisition policy at the Defense Department.
Assad is leading a systematic evaluation of DOD’s procurement and acquisition workforce. He said DOD is more interested in knowing employees’ actual skills and competencies than seeing a list of training courses they have taken or certifications they hold.
For the past seven months, DOD and Defense Acquisition University officials have been developing a workforce assessment plan, which they will begin implementing in March at the Defense Logistics Agency, the Defense Information Systems Agency and an unidentified Air Force location.
Workforce worries The shortage of federal acquisition employees has reached a critical stage, said Marcia Madsen, a partner at Mayer Brown Rowe and Maw in Washington, D.C.Madsen led an advisory group of 13 government contracting experts known as the Services Acquisition Reform Act (SARA) panel, which recommended changes in federal contracting.
The dollar value of federal contracts has increased 63 percent since the 2001 terrorist attacks, and new regulations have complicated the acquisition process, but the size of the federal acquisition workforce has remained the same, Madsen said.
2/24/2007
Last Year's Outsourcing Trends are Accelerating
Look for accelerated growth this year of the outsourcing trends that predominated in 2006: Expansion of business process outsourcing (BPO), the maturing of the offshore market and more multi-sourcing at the expense of single, one-off "mega-deals."
That's the word from a survey of lawyers at the lawyers in Morrison Foerster's Global Sourcing Group. Their view is based not only on their own experience on sourcing projects but also on the opinion of clients, service providers and outsourcing consultants, the company says.
Each of the trends cited will continue this year but at an accelerated pace, Morrison Foerster says. Not only has the mega-deal suffered, for example, but most deals are now shorter in duration and smaller in value than two years ago. Businesses remain committed to outsourcing but are less prepared than in the recent past to lock into long-term deals. Flexibility has become the outsourcing mantra.
Predictions for the outsourcing market in 2007 include:
* A continued trend towards smaller, shorter deals as businesses focus on individual processes instead of large, complex institutional transactions;
* Increased reliance on global service delivery models;
* More importance for data privacy and data security issues;
* Increased offshoring to China;
* A revival of anti-outsourcing sentiment with 2006 U.S. mid-term elections;
* Adoption of recognizable elements of IT outsourcing and BPO into traditional Japanese contract partnering operation.
In the meantime, outsourcing remains a buyer's market. Increased competition from service providers allows customers to pick and choose. Rather than risking whole business lines with a single service provider, shorter duration and smaller value transactions allow businesses to spread operational risk and develop new relationships. The trend complicates governance, a burden that businesses appear willing to shoulder. Besides, assigning a broad set of service requirements to a single service did not always work well in the past.
Niche players are winning more deals at the expense of both the Tier 1 service providers and the sub-Tier 1 mid-range providers. While the outsourcing market continues to expand rapidly enough that the larger service providers can protect their earnings even with a reducing market share, the potential losers are likely to be mid-level service providers who have not come up with a strategy to overcome the shift. In 2007, many of the traditional big service providers may change their focus and try to wind more of the smaller deals.
Multi-sourcing has become the favored strategy. One service provider cannot be good at everything--and concentrating on "best of breed" is likely to deliver value. That strategy comes with a cost because businesses need to spend more time and money managing service providers. We find that our clients are more focused on governance than they were even two years ago. They build on-going governance and retained organization costs of 8% to 15% into their business cases. However, many customers struggle to manage deals properly, and project management needs to improve if multi-sourcing is to achieve its goals.
Exceptions occur. Big deals are still signed by the Tier 1 service providers. The difference is that the large deals are now concentrated in fewer sectors, and many larger deals are broken up when they come up for renewal. Outsourcing consultancy TPI predicts fewer than eight deals in 2007 with a value in excess of $1 billion, down from 15 in 2005 and 25 in 2004.
As deals become smaller and customers focus on governance, deals are taking longer to close. There is a difference between offshore-origin service providers (who remain fleet-of-foot and prepared to meet customers' expectations to close deals quickly) and larger (especially Tier 1) providers. The big providers have increasingly protracted and convoluted sign-off procedures and are reluctant to move away from predetermined policy positions. Big service providers need to ensure they have factored their increased cost of sales into bids and that they set realistic expectations about projected revenue.
Still, business process outsourcing (BPO) will remain the fastest growing sector in 2007. More processes are now in-scope, both front and back office. HRO has not grown as much in 2006 as predicted, as service providers have struggled to deliver the savings and performance. Hewitt and Convergys have revealed less-than-expected performance data in 2006, which has slowed HRO Other areas, however, continue to grow.
Finance and accounting should be a growth area in 2007 as CFOs have moved on from Sarbanes-Oxley compliance issues to examine internal processes. Many of our insurance clients outsource claims administration services to cut costs and improve performance. The insurance sector should clearly remain a key buyer of outsourcing services, as companies are driven to reduce their costs further. Shortages of skills prompt insurance companies to outsource the support for the roll-out of new products.
In another trend, 2006 saw the convergence of onshore and offshore. More deals involve an element of offshore delivery, and key offshore service providers are coming onshore to win business. In March 2006, for example, Pearl Insurance outsourced payment execution services to TCS, which came onshore to win that work. Many of the Indian-origin service providers now have delivery centers in all key geographic areas. That has helped them win more deals from the Tier 1 service providers and move beyond their typical strengths in applications development and maintenance (ADM).
Increasingly, service providers will be distinguished from each other -- and selected by customers -- based on the robustness of the global service delivery model--in other words, by their ability to source services delivery from the right place at the best price.
Last year also saw more work done in China, a trend that will continue. Although India retains a cost and language advantage, China closes the gap year-by-year and is making strides to close the significant skills gap for many types of outsourcing. Analysts have recently claimed that between 5% and 10% of U.S. and European IT software outsourcing will be diverted from India to China in a few years. Certainly most of the major Indian service providers are established in at least one major center in China, as are some of the U.S. service providers.
Businesses are looking to China for ADM work. Despite a Chinese regulatory regime that remains less friendly to business interests than the system in India, the Philippines and other popular sourcing destinations, more companies are sending ADM work to China where the cost advantages are greatest.
Deals are won by Indian service providers and are then performed in China, and we believe that trend will continue. India will remain the largest offshore center for the immediate future, and more complex work will be performed there for the moment. China will begin to attract more lower-value work, especially ADM. Businesses also set up their own development centers in China, usually as a joint venture with a Chinese partner. That is done for traditional off-shoring work as well as to position companies for the Chinese domestic market. Operating in China remains complex.
Data privacy and security are now established as major concerns in outsourcing, too. Global companies have become concerned that their outsourcing contracts do not protect them from security breaches, and consumers are also alive to the issue after media exposes. Research by the UK's National Outsourcing Association demonstrated how data protection concerns loom large in the minds of companies contemplating outsourcing.
That trend will continue in 2007, and much more effort will be put into ensuring data security requirements are met and that customers are informed of security breaches by service providers. Meanwhile, global companies will continue to permit cross-border data transfers.
That's the word from a survey of lawyers at the lawyers in Morrison Foerster's Global Sourcing Group. Their view is based not only on their own experience on sourcing projects but also on the opinion of clients, service providers and outsourcing consultants, the company says.
Each of the trends cited will continue this year but at an accelerated pace, Morrison Foerster says. Not only has the mega-deal suffered, for example, but most deals are now shorter in duration and smaller in value than two years ago. Businesses remain committed to outsourcing but are less prepared than in the recent past to lock into long-term deals. Flexibility has become the outsourcing mantra.
Predictions for the outsourcing market in 2007 include:
* A continued trend towards smaller, shorter deals as businesses focus on individual processes instead of large, complex institutional transactions;
* Increased reliance on global service delivery models;
* More importance for data privacy and data security issues;
* Increased offshoring to China;
* A revival of anti-outsourcing sentiment with 2006 U.S. mid-term elections;
* Adoption of recognizable elements of IT outsourcing and BPO into traditional Japanese contract partnering operation.
In the meantime, outsourcing remains a buyer's market. Increased competition from service providers allows customers to pick and choose. Rather than risking whole business lines with a single service provider, shorter duration and smaller value transactions allow businesses to spread operational risk and develop new relationships. The trend complicates governance, a burden that businesses appear willing to shoulder. Besides, assigning a broad set of service requirements to a single service did not always work well in the past.
Niche players are winning more deals at the expense of both the Tier 1 service providers and the sub-Tier 1 mid-range providers. While the outsourcing market continues to expand rapidly enough that the larger service providers can protect their earnings even with a reducing market share, the potential losers are likely to be mid-level service providers who have not come up with a strategy to overcome the shift. In 2007, many of the traditional big service providers may change their focus and try to wind more of the smaller deals.
Multi-sourcing has become the favored strategy. One service provider cannot be good at everything--and concentrating on "best of breed" is likely to deliver value. That strategy comes with a cost because businesses need to spend more time and money managing service providers. We find that our clients are more focused on governance than they were even two years ago. They build on-going governance and retained organization costs of 8% to 15% into their business cases. However, many customers struggle to manage deals properly, and project management needs to improve if multi-sourcing is to achieve its goals.
Exceptions occur. Big deals are still signed by the Tier 1 service providers. The difference is that the large deals are now concentrated in fewer sectors, and many larger deals are broken up when they come up for renewal. Outsourcing consultancy TPI predicts fewer than eight deals in 2007 with a value in excess of $1 billion, down from 15 in 2005 and 25 in 2004.
As deals become smaller and customers focus on governance, deals are taking longer to close. There is a difference between offshore-origin service providers (who remain fleet-of-foot and prepared to meet customers' expectations to close deals quickly) and larger (especially Tier 1) providers. The big providers have increasingly protracted and convoluted sign-off procedures and are reluctant to move away from predetermined policy positions. Big service providers need to ensure they have factored their increased cost of sales into bids and that they set realistic expectations about projected revenue.
Still, business process outsourcing (BPO) will remain the fastest growing sector in 2007. More processes are now in-scope, both front and back office. HRO has not grown as much in 2006 as predicted, as service providers have struggled to deliver the savings and performance. Hewitt and Convergys have revealed less-than-expected performance data in 2006, which has slowed HRO Other areas, however, continue to grow.
Finance and accounting should be a growth area in 2007 as CFOs have moved on from Sarbanes-Oxley compliance issues to examine internal processes. Many of our insurance clients outsource claims administration services to cut costs and improve performance. The insurance sector should clearly remain a key buyer of outsourcing services, as companies are driven to reduce their costs further. Shortages of skills prompt insurance companies to outsource the support for the roll-out of new products.
In another trend, 2006 saw the convergence of onshore and offshore. More deals involve an element of offshore delivery, and key offshore service providers are coming onshore to win business. In March 2006, for example, Pearl Insurance outsourced payment execution services to TCS, which came onshore to win that work. Many of the Indian-origin service providers now have delivery centers in all key geographic areas. That has helped them win more deals from the Tier 1 service providers and move beyond their typical strengths in applications development and maintenance (ADM).
Increasingly, service providers will be distinguished from each other -- and selected by customers -- based on the robustness of the global service delivery model--in other words, by their ability to source services delivery from the right place at the best price.
Last year also saw more work done in China, a trend that will continue. Although India retains a cost and language advantage, China closes the gap year-by-year and is making strides to close the significant skills gap for many types of outsourcing. Analysts have recently claimed that between 5% and 10% of U.S. and European IT software outsourcing will be diverted from India to China in a few years. Certainly most of the major Indian service providers are established in at least one major center in China, as are some of the U.S. service providers.
Businesses are looking to China for ADM work. Despite a Chinese regulatory regime that remains less friendly to business interests than the system in India, the Philippines and other popular sourcing destinations, more companies are sending ADM work to China where the cost advantages are greatest.
Deals are won by Indian service providers and are then performed in China, and we believe that trend will continue. India will remain the largest offshore center for the immediate future, and more complex work will be performed there for the moment. China will begin to attract more lower-value work, especially ADM. Businesses also set up their own development centers in China, usually as a joint venture with a Chinese partner. That is done for traditional off-shoring work as well as to position companies for the Chinese domestic market. Operating in China remains complex.
Data privacy and security are now established as major concerns in outsourcing, too. Global companies have become concerned that their outsourcing contracts do not protect them from security breaches, and consumers are also alive to the issue after media exposes. Research by the UK's National Outsourcing Association demonstrated how data protection concerns loom large in the minds of companies contemplating outsourcing.
That trend will continue in 2007, and much more effort will be put into ensuring data security requirements are met and that customers are informed of security breaches by service providers. Meanwhile, global companies will continue to permit cross-border data transfers.
2/20/2007
BPO: China the biggest threat to India
Despite the emergence of China and Philippines as competitors in the business process outsourcing space, India is well placed in terms of parameters like cost savings, competency, technical infrastructure, language and skill pool, according to an industry report by ICRA.
In the BPO field, China is perhaps the biggest challenge in the future and the largest threat to India, and with the largest population and fastest economic growth, the Chinese have at least two advantages in the global outsourcing market -- manufacturing and IT -- the report said.
In terms of outsourcing options, India has a significant cost savings model with multiple competencies in various areas, an emerging technical infrastructure, highly rated skill pool with English language and extensive cultural fit, the rating agency said.
The main disadvantages of China are lack of good quality record in software, whereas India has a better image as quality supplier, ICRA said in its BPO industry report.
With low percentage of Chinese population speaking English and a less mature and relatively new BPO industry, India stands tall in these areas vis-a-vis China, it said.
However, China has certain advantages in offering low manpower costs compared to India, and being close to Japan, its BPO market is also likely to grow through the Japanese outsourcing route. As India currently offers no BPO services in Japan, China will capitalise on its proximity to it, the report said.
The report also mentions the proactive approach of Chinese government towards BPO sector.
"The Chinese government has invested over $5.4 billion in nine universities to promote English language and other skill sets," it said, while adding China could also leverage on its strong manufacturing base image.
As regards Philippines, the disadvantages are low graduate turnout with only 400,000 graduates per annum which puts it unfavourably with India, poor record on quality vis-a-vis India, and political instability resulting in lack of uniformity in policies, ICRA said.
There is also an absence of multi-location facilities in Philippines and the country faces the important issue of scaling up. The largest call centre in Philippines of AOL has only 800 people and the size of the industry there is only $100 million, the report noted. India's BPO industry size is $2 billion.
Philippines enjoys advantages in being a former United States colony that helps in emulating US culture and language, well developed IT skill set, third largest English speaking nation in the world and large scale technical training programme.
Though countries like Australia, Canada and Ireland are the other players, they are not serious competitors to India due to a small population base, ICRA said.
In the BPO field, China is perhaps the biggest challenge in the future and the largest threat to India, and with the largest population and fastest economic growth, the Chinese have at least two advantages in the global outsourcing market -- manufacturing and IT -- the report said.
In terms of outsourcing options, India has a significant cost savings model with multiple competencies in various areas, an emerging technical infrastructure, highly rated skill pool with English language and extensive cultural fit, the rating agency said.
The main disadvantages of China are lack of good quality record in software, whereas India has a better image as quality supplier, ICRA said in its BPO industry report.
With low percentage of Chinese population speaking English and a less mature and relatively new BPO industry, India stands tall in these areas vis-a-vis China, it said.
However, China has certain advantages in offering low manpower costs compared to India, and being close to Japan, its BPO market is also likely to grow through the Japanese outsourcing route. As India currently offers no BPO services in Japan, China will capitalise on its proximity to it, the report said.
The report also mentions the proactive approach of Chinese government towards BPO sector.
"The Chinese government has invested over $5.4 billion in nine universities to promote English language and other skill sets," it said, while adding China could also leverage on its strong manufacturing base image.
As regards Philippines, the disadvantages are low graduate turnout with only 400,000 graduates per annum which puts it unfavourably with India, poor record on quality vis-a-vis India, and political instability resulting in lack of uniformity in policies, ICRA said.
There is also an absence of multi-location facilities in Philippines and the country faces the important issue of scaling up. The largest call centre in Philippines of AOL has only 800 people and the size of the industry there is only $100 million, the report noted. India's BPO industry size is $2 billion.
Philippines enjoys advantages in being a former United States colony that helps in emulating US culture and language, well developed IT skill set, third largest English speaking nation in the world and large scale technical training programme.
Though countries like Australia, Canada and Ireland are the other players, they are not serious competitors to India due to a small population base, ICRA said.
BPO: China fast catching up with India
China is fast catching up with India by offering cost-effective outsourcing services with the latest success being US telecom giant Avaya setting up a large facility in the country, a research firm said.
According to a recent report from Callcenters.net, an Asian research firm, China's call centre industry is set to grow 22 per cent this year.
The size of the industry's labour force, including bank hotline services and IT companies' technical support staff, will hit 158,000 this year, up from 130,000 last year, registering a 22 per cent increase.
In India, the work force is seen rising 16 per cent to 312,500, Sydney-based research firm Callcentres.net said.
Although the size of China's call centre industry is just half that of India's, experts said China's high productivity and cost-effective human resources will attract more multinationals to set up centres in the country.
Avaya has set up an "intelligent communications centre" in Dalian city in north-east China, as part of the company's commitment to the local government in June last year to help turn the booming city into a call centre hub for China and other Northeast Asian markets, the state media reported today.
The centre, located in the Dalian Software Park, will also be Avaya's software and service headquarters for the Asia-Pacific region, senior vice-president of Avaya Global Services Francis Scricco said.
According to a report by US consultancy Frost & Sullivan, Avaya tops China's call centre products and services market with a share of about 20 per cent.
However, things are changing rapidly. For example, multinationals including Dell Inc, Motorola and HP have shifted their call centres to China to take advantage of its cheap labour, China Daily reported.
Domestic firms such as China Mobile and Bank of China have also begun to establish their own call centres with advanced communication systems.
China is keen to enter the outsourcing business and has sent a number of delegations to India to study the working of Indian call centres.
However, poor English language skills seem to be a major problem for the Chinese to compete with Indians.
China, known as the world's factory, is also keen for an image makeover. Chinese leaders have emphasised that the country should encourage service sector as a new area for high growth along with hi-tech manufacturing while cutting down on low-end manufacturing.
According to a recent report from Callcenters.net, an Asian research firm, China's call centre industry is set to grow 22 per cent this year.
The size of the industry's labour force, including bank hotline services and IT companies' technical support staff, will hit 158,000 this year, up from 130,000 last year, registering a 22 per cent increase.
In India, the work force is seen rising 16 per cent to 312,500, Sydney-based research firm Callcentres.net said.
Although the size of China's call centre industry is just half that of India's, experts said China's high productivity and cost-effective human resources will attract more multinationals to set up centres in the country.
Avaya has set up an "intelligent communications centre" in Dalian city in north-east China, as part of the company's commitment to the local government in June last year to help turn the booming city into a call centre hub for China and other Northeast Asian markets, the state media reported today.
The centre, located in the Dalian Software Park, will also be Avaya's software and service headquarters for the Asia-Pacific region, senior vice-president of Avaya Global Services Francis Scricco said.
According to a report by US consultancy Frost & Sullivan, Avaya tops China's call centre products and services market with a share of about 20 per cent.
However, things are changing rapidly. For example, multinationals including Dell Inc, Motorola and HP have shifted their call centres to China to take advantage of its cheap labour, China Daily reported.
Domestic firms such as China Mobile and Bank of China have also begun to establish their own call centres with advanced communication systems.
China is keen to enter the outsourcing business and has sent a number of delegations to India to study the working of Indian call centres.
However, poor English language skills seem to be a major problem for the Chinese to compete with Indians.
China, known as the world's factory, is also keen for an image makeover. Chinese leaders have emphasised that the country should encourage service sector as a new area for high growth along with hi-tech manufacturing while cutting down on low-end manufacturing.
Outsourcing: perception vs reality
When the first software code was written nobody could have predicted that the year 2000 would shake the IT world to its foundations. The world woke up with an unknown, unseen, and imaginary threat of Y2K looming over it. The need of the hour was to update computer systems so that they would continue to run as 2000 dawned and beyond.
During the same time, India, one of the largest English-speaking pools possessing a highly educated young population, was trying to establish a foothold in the IT industry. It was a natural choice of companies, mainly those in the United States, to see if they could tap the resources of the Indian software industry to counter the immediate threat of Y2K. That was Indian IT's first break.
Worldwide enterprise IT expenditures soared from $175 billion at the decade's start to more than $525 billion in 2000. It was the first time that India started dating the US.
Post-Y2K, the IT world placed its biggest bet ever on e-commerce (dotcoms). This failed miserably, and the dreams of hundreds of entrepreneurs were shattered. However, the world of IT discovered a few gems from the experience, and one of these was the existence of low-cost, highly-skilled Indian labour.
The need of the hour
The economy fell flat on its face in 2001. To run enterprise systems, especially legacy, CRM and ERP became an expensive and unwieldy affair. With labour alone accounting for nearly 75 percent of the cost of software development, finding talented staff, nurturing them and keeping them permanently on the payroll appeared to be a liability. Most CIOs in the US and Europe had been forced to change their IT policies and adopt strategies to curb in-house IT spending.
Their response to this crisis was to lay-off their in-house IT talent and hunt for third-party vendors who could support their enterprise systems by either co-locating to the company's own premises or by offering remote support.
IT leaders soon realised that using resources from countries such as India and China would help them save on IT spending by nearly 50 to 70 percent.
It was not an employee-friendly policy, but little attention was paid to the protests that followed. The process of laying off in developed countries and shifting jobs offshore to countries where labour was cheap started simultaneously.
McKinsey predicts that IT offshoring will result in net savings to the American economy of $390 billion by 2010. $24 billion of outsourcing contracts will be signed in 2006. Asian countries such as India, China and Taiwan offer a formidable combination of low wages and regular supply of skilled resources geared up to tap the huge market for offshoring. Indians specialised in custom application maintenance and distinct management practices. They began to offer a range of software services and consulting.
Destination India
India's pool of young university graduates (those with seven years or less of work experience) is estimated at 14 million. As of December 2005, over 400 Indian companies had acquired quality certifications with 82 companies certified at SEI CMM Level 5, making India the top in terms of certifications worldwide.
A recent survey by Nasscom found that almost two out of five Fortune 500 companies outsource some of their software requirements to India. More companies are going offshore to develop and maintain their software. GE, Bank of America, Target, and American Express, for example, have formed partnerships with Indian IT firms or started their own development centres. The reason is obvious: this approach saves time and money. Moreover, it is steadily growing more attractive. Last year, North American companies alone spent $114 billion on in-house software development, contracting, and purchases—and these costs will only go up as additional basic business processes are conducted over the Internet.
In 2004-05, the Indian offshore IT and business-process-outsourcing industry will generate approximately $17.3 billion in revenues.
Offshoring economics
* It's the exchange rate. The exchange rate of the Indian rupee vis-Ã -vis major currencies such as the US dollar, UK pound sterling, and the Euro are wide and continue to be so. As long as the exchange rates undervalue the rupee, this cost advantage will continue. Although recent years have seen a trend in rupee appreciation against the US dollar and other major currencies, it is likely that the appreciation will be slow and steady over the long term, and it is unlikely to alter the economics of the offshore model.
* Lower cost of living. Although India is in a post-liberalisation era, basic commodities still enjoy government protection and inflation is under control, hence there is room for salaries in India to become more competitive in response to competition from other countries.
Coming of age
After realising cost savings and growth in revenue, there is a gold rush to outsource software work to Indian companies. American and European establishments moved to outsource their in-house work either to low-cost countries, primarily India, or to open development centres to achieve further control over costs. It has been found that 80 percent of IT services or help-desk jobs are already being performed remotely.
The global outsourcing of IT and BPO services has grown nearly three times over the last five years. So far Indian vendors have managed to corner the lion's share of outsourced business. That said, a recent study revealed the surprising fact that India could bag only 10 percent of the global outsourcing pie. In 2006-07 itself, around $50-70 billion worth of contracts are in the pipeline, either to outsource or for renewal.
The Indian IT-BPO industry stretches itself to accept challenges and gain a large share of the growing outsourcing business by expanding operations beyond the metros to counter the crumbling infrastructure and scarcity of IT professionals in the big cities. IBM's headcount in India that currently stands at 38,500 professionals will increase by another 50,000 over the next 12-15 months (source: www.rediff.com). Accenture, with around 20,000 people in India, is targeting a base of 50,000 professionals in South-East Asia by 2009. The top three domestic majors (TCS, Infosys, and Wipro) plan to add another 60,000 people over the next 18 months.
It is expected that the Indian software biggies will make more acquisitions in India and abroad to move up the value chain, and that they will acquire domain expertise. Companies will offer end-to-end solutions from business consultancy to help-desk. They will even offer near-shore support by providing support from nearby countries (e.g. Canada for US clients).
Remote management
As IT vendors get ready to offer services of superior quality at a low cost and on demand, organisations have changed their outsource strategy to split a deal across several IT vendors to minimise risk and get a competitive price. It is advisable to renew contracts at a frequency of 3 to 5 years to ensure that vendors compete among themselves in service provisioning.
Vendors need more specialised leaders to handle contract management. These outsourcing leaders will be the link to CIOs in the client companies. On the part of the client, it needs to do more than merely outsource. These leaders have to perform a multi-purpose role of negotiator and collaborator, and provide leadership to an offshore team.
So where is the problem?
* Low-value job. During the early days of outsourcing it was commonly perceived that the way to go was to choose jobs that were repetitive in nature. Low-business-value maintenance tasks were offloaded to vendors. This was principally because business leaders were not fully aware of the capabilities of these vendor, their skills and strengths, or simply not confident about their ability to deliver the goods.
* Cultural differences. For many years, India among developing countries remained aloof from westernisation, hence there is a cultural barrier hindering us from picking up outsourcing momentum. Clashes between different languages, cultures, and work practices can make collaborating with a client a formidable challenge.
* Know the business. Indian techies were good in following 'what they were being asked to do.' It was common to find displeased American and European clients finding that sending work offshore did not always bring value to business. One reason was a mismatch between the IT capabilities of client companies and those of the offshore vendors.
* Communication. With client and vendor teams being located thousands of miles apart, voice communication remains a critical tool to carry out daily business. Oftentimes, cultural difference and an absence of professionalism prevent a vendor from rising to the occasion.
* Different time zones. As Indian vendors started supporting clients located in other countries across time zones, it became imperative to offer support to their clients in their time zones for services rendered. It has always been seen as a challenge to provide after-office-hours support, a problem further exacerbated by poor infrastructure.
Setting aside the top IT and management schools, the quality of education in other educational establishments hasn't kept pace with the times; the curriculum is often out of date and unsuited to current market needs.
A large portion of the population of engineering graduates are attracted to foreign jobs as they are looking for better opportunities and an assured financial future.
Indian entrepreneurs and multinationals are setting up shop, ensuring that the demand for experienced resources stays high. Today, everyone is engage in poaching talent rather than building it from scratch. Naturally, keeping salaries high to lure talent is 'bad in the long run.'
Wage differential
Rising wages leading to high levels of attrition are worrying factors not only for Indian IT leaders but also for major US clients. Almost everyone is on a hiring spree, with multi-million dollar deals about to be signed in the near future. It's almost imperative to have the right talent at the right time. The upshot of all this is that each one is engaged in talent poaching.
Soon, average wages in the IT sector will reach a threshold. However, there remains a wide gap between Indian and Western wages, so it may take a decade for parity to be established. Almost all IT companies have concentrated their operations in a handful of cities, hence the demand and supply equation of talent remains inversely proportional.
The story of Indian IT is mainly written by private players with little government support. While the government is adamant in emphasising its role in creating a conducive atmosphere, the reality is that the infrastructure is worse than bad, that the telecom sector growth to support corporate initiatives is happening at a snail's pace, and that this growth is principally focussed on adding individual subscribers.
The Indian state needs foreign direct investment, but entrepreneurs often face embarrassment in accompanying foreign delegates from crumbling airports to swank company headquarters.
Ensuring a secure future
* Collaboration rather than competition. As everyone needs skilled resources to grab outsourcing deals, a wage war is underway to attract talent by any means. It is not impossible to collaborate with competitors where each player can leverage the other's domain and industry experience. The advantages are two-fold. They can bid together to claim a strength that neither possesses alone instead losing a deal by flying solo, and most important of all avoid compromising on the profit margin which usually gets hit when both players would otherwise be competing. It is a clear win-win situation.
* Innovate, not replicate. Offshoring often ends up replicating the same model that already exists at the client's end. On the face of it, it does save money for the client because of the wage differential. In the long run however, it doesn't add value to the client's business. Beyond transition, it is transformation that can play a greater role in realising business goals. Indian talent often goes to waste merely doing things rather than innovating. The client should encourage and vendors should propose the best model that will work in the long run to sustain the client's revenue growth. This is possible only when the client sees a vendor as a partner and allows him to make the decision rather than seeing him purely as a service provider.
Global and local
Tier-1 Indian companies are seen making outsourcing deals valued in the range of $200-300 million. It is global IT majors such as IBM and Accenture that continue to dominate mega, multi-geography deals. This is mainly because of their capability, global presence, and the ability to offer infrastructure support in addition to services under one roof. The primary challenge of India's leading software houses will be to expand beyond the country's borders by building worldwide networks capable of providing advanced services—both in distant, low-cost locations and in the customer's home country.
One should not hesitate to say that Indian companies must shift their headquarters from India. That's the only way to make them truly global entities.
Spreading wings into emerging countries will force companies to adapt their recruiting and training skills. It may take Indian companies several years to build skills and brands worldwide. To manage a global presence, these organisations will need leaders who are effective across organisational and national boundaries.
It is also important to generate the friction that shapes and sharpens learning when people of different backgrounds and skills collaborate on real problems. Clear performance targets, an unconstrained environment for finding solutions, and the sharing of prototypes across organisational boundaries generally produces the most beneficial results. Processes must be developed with the help of new generations of information technology to ensure that innovations are disseminated across the network.
What India should do
* Know your customer. Know his problems and business imperatives. Make sure that the product or service you are providing drives his business objectives further and solves his problems. It actually takes a lot to achieve this. It requires that people currently supporting various client businesses should be in touch with customers beyond just the IT task at hand. They must unleash technologies that can help solve complex problems, integrate various loose pieces, and grow the client's business. Establishing a comfortable level of mutual trust and confidence with the customer is a crucial exercise. This can be cultivated through improved visibility and authoritative participation in industry events and conferences. People should come to be recognised as respected authorities in their area of business.
* On demand. The business scenario is changing faster than the time it takes to design a solution. The future belongs to those who can conceive fresher ideas and solutions. An organisation today needs to be innovative, to which end it must offer an environment where creative people can deliver results and make continuous improvements. Innovating requires a number of inputs; one needs to be aware of the market situation, identify trends, keep pace with emerging technologies, and effectively use this knowledge to come up with solutions before competitors can.
Things India should avoid
Today, India clearly dominates the IT outsourcing arena. It has a few superior characteristics when compared to its nearest rival. Competition is wide but the runner-up is far behind India. It is natural to enjoy today's success and assume that tomorrow's business is assured. However, the environment is changing rapidly, clients expect more from their vendors, and they often bring more players to the deal to get competitive prices. To counter this challenge, vendors need a different strategy that can provide steady results. To remain alert and not get carried away with today's successes is imperative.
There is a need to invest in resources and employees. Training is a weak area. Beyond academic education, which itself is often not paid sufficient attention, investment in role-based training and building domain skills should be taken up as a priority. This will help Indian techies communicate with clients in their own business language.
Product development is quite low vis-a-vis application services. Today's business faces many problems and different practices to perform the same function. The Indian presence across geographies and businesses in all industries gives Indian companies the opportunity to offer streamlined processes with easily adoptable products. Indian IT leaders should take risks in product development rather than stay content in enjoying the safety of services.
Services follow products. The client is not aware of where there is room for improvement to minimise long operation cycles and arrest revenue leakage. Re-engineering services is an unexplored area that needs immediate attention and sustained effort.
During the same time, India, one of the largest English-speaking pools possessing a highly educated young population, was trying to establish a foothold in the IT industry. It was a natural choice of companies, mainly those in the United States, to see if they could tap the resources of the Indian software industry to counter the immediate threat of Y2K. That was Indian IT's first break.
Worldwide enterprise IT expenditures soared from $175 billion at the decade's start to more than $525 billion in 2000. It was the first time that India started dating the US.
Post-Y2K, the IT world placed its biggest bet ever on e-commerce (dotcoms). This failed miserably, and the dreams of hundreds of entrepreneurs were shattered. However, the world of IT discovered a few gems from the experience, and one of these was the existence of low-cost, highly-skilled Indian labour.
The need of the hour
The economy fell flat on its face in 2001. To run enterprise systems, especially legacy, CRM and ERP became an expensive and unwieldy affair. With labour alone accounting for nearly 75 percent of the cost of software development, finding talented staff, nurturing them and keeping them permanently on the payroll appeared to be a liability. Most CIOs in the US and Europe had been forced to change their IT policies and adopt strategies to curb in-house IT spending.
Their response to this crisis was to lay-off their in-house IT talent and hunt for third-party vendors who could support their enterprise systems by either co-locating to the company's own premises or by offering remote support.
IT leaders soon realised that using resources from countries such as India and China would help them save on IT spending by nearly 50 to 70 percent.
It was not an employee-friendly policy, but little attention was paid to the protests that followed. The process of laying off in developed countries and shifting jobs offshore to countries where labour was cheap started simultaneously.
McKinsey predicts that IT offshoring will result in net savings to the American economy of $390 billion by 2010. $24 billion of outsourcing contracts will be signed in 2006. Asian countries such as India, China and Taiwan offer a formidable combination of low wages and regular supply of skilled resources geared up to tap the huge market for offshoring. Indians specialised in custom application maintenance and distinct management practices. They began to offer a range of software services and consulting.
Destination India
India's pool of young university graduates (those with seven years or less of work experience) is estimated at 14 million. As of December 2005, over 400 Indian companies had acquired quality certifications with 82 companies certified at SEI CMM Level 5, making India the top in terms of certifications worldwide.
A recent survey by Nasscom found that almost two out of five Fortune 500 companies outsource some of their software requirements to India. More companies are going offshore to develop and maintain their software. GE, Bank of America, Target, and American Express, for example, have formed partnerships with Indian IT firms or started their own development centres. The reason is obvious: this approach saves time and money. Moreover, it is steadily growing more attractive. Last year, North American companies alone spent $114 billion on in-house software development, contracting, and purchases—and these costs will only go up as additional basic business processes are conducted over the Internet.
In 2004-05, the Indian offshore IT and business-process-outsourcing industry will generate approximately $17.3 billion in revenues.
Offshoring economics
* It's the exchange rate. The exchange rate of the Indian rupee vis-Ã -vis major currencies such as the US dollar, UK pound sterling, and the Euro are wide and continue to be so. As long as the exchange rates undervalue the rupee, this cost advantage will continue. Although recent years have seen a trend in rupee appreciation against the US dollar and other major currencies, it is likely that the appreciation will be slow and steady over the long term, and it is unlikely to alter the economics of the offshore model.
* Lower cost of living. Although India is in a post-liberalisation era, basic commodities still enjoy government protection and inflation is under control, hence there is room for salaries in India to become more competitive in response to competition from other countries.
Coming of age
After realising cost savings and growth in revenue, there is a gold rush to outsource software work to Indian companies. American and European establishments moved to outsource their in-house work either to low-cost countries, primarily India, or to open development centres to achieve further control over costs. It has been found that 80 percent of IT services or help-desk jobs are already being performed remotely.
The global outsourcing of IT and BPO services has grown nearly three times over the last five years. So far Indian vendors have managed to corner the lion's share of outsourced business. That said, a recent study revealed the surprising fact that India could bag only 10 percent of the global outsourcing pie. In 2006-07 itself, around $50-70 billion worth of contracts are in the pipeline, either to outsource or for renewal.
The Indian IT-BPO industry stretches itself to accept challenges and gain a large share of the growing outsourcing business by expanding operations beyond the metros to counter the crumbling infrastructure and scarcity of IT professionals in the big cities. IBM's headcount in India that currently stands at 38,500 professionals will increase by another 50,000 over the next 12-15 months (source: www.rediff.com). Accenture, with around 20,000 people in India, is targeting a base of 50,000 professionals in South-East Asia by 2009. The top three domestic majors (TCS, Infosys, and Wipro) plan to add another 60,000 people over the next 18 months.
It is expected that the Indian software biggies will make more acquisitions in India and abroad to move up the value chain, and that they will acquire domain expertise. Companies will offer end-to-end solutions from business consultancy to help-desk. They will even offer near-shore support by providing support from nearby countries (e.g. Canada for US clients).
Remote management
As IT vendors get ready to offer services of superior quality at a low cost and on demand, organisations have changed their outsource strategy to split a deal across several IT vendors to minimise risk and get a competitive price. It is advisable to renew contracts at a frequency of 3 to 5 years to ensure that vendors compete among themselves in service provisioning.
Vendors need more specialised leaders to handle contract management. These outsourcing leaders will be the link to CIOs in the client companies. On the part of the client, it needs to do more than merely outsource. These leaders have to perform a multi-purpose role of negotiator and collaborator, and provide leadership to an offshore team.
So where is the problem?
* Low-value job. During the early days of outsourcing it was commonly perceived that the way to go was to choose jobs that were repetitive in nature. Low-business-value maintenance tasks were offloaded to vendors. This was principally because business leaders were not fully aware of the capabilities of these vendor, their skills and strengths, or simply not confident about their ability to deliver the goods.
* Cultural differences. For many years, India among developing countries remained aloof from westernisation, hence there is a cultural barrier hindering us from picking up outsourcing momentum. Clashes between different languages, cultures, and work practices can make collaborating with a client a formidable challenge.
* Know the business. Indian techies were good in following 'what they were being asked to do.' It was common to find displeased American and European clients finding that sending work offshore did not always bring value to business. One reason was a mismatch between the IT capabilities of client companies and those of the offshore vendors.
* Communication. With client and vendor teams being located thousands of miles apart, voice communication remains a critical tool to carry out daily business. Oftentimes, cultural difference and an absence of professionalism prevent a vendor from rising to the occasion.
* Different time zones. As Indian vendors started supporting clients located in other countries across time zones, it became imperative to offer support to their clients in their time zones for services rendered. It has always been seen as a challenge to provide after-office-hours support, a problem further exacerbated by poor infrastructure.
Setting aside the top IT and management schools, the quality of education in other educational establishments hasn't kept pace with the times; the curriculum is often out of date and unsuited to current market needs.
A large portion of the population of engineering graduates are attracted to foreign jobs as they are looking for better opportunities and an assured financial future.
Indian entrepreneurs and multinationals are setting up shop, ensuring that the demand for experienced resources stays high. Today, everyone is engage in poaching talent rather than building it from scratch. Naturally, keeping salaries high to lure talent is 'bad in the long run.'
Wage differential
Rising wages leading to high levels of attrition are worrying factors not only for Indian IT leaders but also for major US clients. Almost everyone is on a hiring spree, with multi-million dollar deals about to be signed in the near future. It's almost imperative to have the right talent at the right time. The upshot of all this is that each one is engaged in talent poaching.
Soon, average wages in the IT sector will reach a threshold. However, there remains a wide gap between Indian and Western wages, so it may take a decade for parity to be established. Almost all IT companies have concentrated their operations in a handful of cities, hence the demand and supply equation of talent remains inversely proportional.
The story of Indian IT is mainly written by private players with little government support. While the government is adamant in emphasising its role in creating a conducive atmosphere, the reality is that the infrastructure is worse than bad, that the telecom sector growth to support corporate initiatives is happening at a snail's pace, and that this growth is principally focussed on adding individual subscribers.
The Indian state needs foreign direct investment, but entrepreneurs often face embarrassment in accompanying foreign delegates from crumbling airports to swank company headquarters.
Ensuring a secure future
* Collaboration rather than competition. As everyone needs skilled resources to grab outsourcing deals, a wage war is underway to attract talent by any means. It is not impossible to collaborate with competitors where each player can leverage the other's domain and industry experience. The advantages are two-fold. They can bid together to claim a strength that neither possesses alone instead losing a deal by flying solo, and most important of all avoid compromising on the profit margin which usually gets hit when both players would otherwise be competing. It is a clear win-win situation.
* Innovate, not replicate. Offshoring often ends up replicating the same model that already exists at the client's end. On the face of it, it does save money for the client because of the wage differential. In the long run however, it doesn't add value to the client's business. Beyond transition, it is transformation that can play a greater role in realising business goals. Indian talent often goes to waste merely doing things rather than innovating. The client should encourage and vendors should propose the best model that will work in the long run to sustain the client's revenue growth. This is possible only when the client sees a vendor as a partner and allows him to make the decision rather than seeing him purely as a service provider.
Global and local
Tier-1 Indian companies are seen making outsourcing deals valued in the range of $200-300 million. It is global IT majors such as IBM and Accenture that continue to dominate mega, multi-geography deals. This is mainly because of their capability, global presence, and the ability to offer infrastructure support in addition to services under one roof. The primary challenge of India's leading software houses will be to expand beyond the country's borders by building worldwide networks capable of providing advanced services—both in distant, low-cost locations and in the customer's home country.
One should not hesitate to say that Indian companies must shift their headquarters from India. That's the only way to make them truly global entities.
Spreading wings into emerging countries will force companies to adapt their recruiting and training skills. It may take Indian companies several years to build skills and brands worldwide. To manage a global presence, these organisations will need leaders who are effective across organisational and national boundaries.
It is also important to generate the friction that shapes and sharpens learning when people of different backgrounds and skills collaborate on real problems. Clear performance targets, an unconstrained environment for finding solutions, and the sharing of prototypes across organisational boundaries generally produces the most beneficial results. Processes must be developed with the help of new generations of information technology to ensure that innovations are disseminated across the network.
What India should do
* Know your customer. Know his problems and business imperatives. Make sure that the product or service you are providing drives his business objectives further and solves his problems. It actually takes a lot to achieve this. It requires that people currently supporting various client businesses should be in touch with customers beyond just the IT task at hand. They must unleash technologies that can help solve complex problems, integrate various loose pieces, and grow the client's business. Establishing a comfortable level of mutual trust and confidence with the customer is a crucial exercise. This can be cultivated through improved visibility and authoritative participation in industry events and conferences. People should come to be recognised as respected authorities in their area of business.
* On demand. The business scenario is changing faster than the time it takes to design a solution. The future belongs to those who can conceive fresher ideas and solutions. An organisation today needs to be innovative, to which end it must offer an environment where creative people can deliver results and make continuous improvements. Innovating requires a number of inputs; one needs to be aware of the market situation, identify trends, keep pace with emerging technologies, and effectively use this knowledge to come up with solutions before competitors can.
Things India should avoid
Today, India clearly dominates the IT outsourcing arena. It has a few superior characteristics when compared to its nearest rival. Competition is wide but the runner-up is far behind India. It is natural to enjoy today's success and assume that tomorrow's business is assured. However, the environment is changing rapidly, clients expect more from their vendors, and they often bring more players to the deal to get competitive prices. To counter this challenge, vendors need a different strategy that can provide steady results. To remain alert and not get carried away with today's successes is imperative.
There is a need to invest in resources and employees. Training is a weak area. Beyond academic education, which itself is often not paid sufficient attention, investment in role-based training and building domain skills should be taken up as a priority. This will help Indian techies communicate with clients in their own business language.
Product development is quite low vis-a-vis application services. Today's business faces many problems and different practices to perform the same function. The Indian presence across geographies and businesses in all industries gives Indian companies the opportunity to offer streamlined processes with easily adoptable products. Indian IT leaders should take risks in product development rather than stay content in enjoying the safety of services.
Services follow products. The client is not aware of where there is room for improvement to minimise long operation cycles and arrest revenue leakage. Re-engineering services is an unexplored area that needs immediate attention and sustained effort.
Report: India, China most popular
The world's two most populous countries--China and India--were named the most popular outsourcing destinations by companies in Asia, according to a recent study KPMG.
Results of the report, titled Asian outsourcing: the next wave, were released last week and revealed that India and China emerged as the top two most popular destinations by many companies in the region which outsource their business processes. India earned top ranking at 55 percent, followed by China at 36 percent.
At 20 percent, Singapore takes third placing in the survey, which covered a total of 305 senior executives from companies in the Asia-Pacific region. About 43 percent of respondents were based in Singapore, Hong Kong, Malaysia, Japan, Australia and New Zealand. Just under 50 percent of participants were based in India and China.
Singapore was closely trailed by Hong Kong at 16 percent, far ahead of fourth-placed Philippines, at 7 percent, which has been traditionally regarded as a lower cost alternative to India.Lim Yen Suan, Singapore-based director of risk advisory services at KPMG, said: "While not the lowest priced, Singapore offers strong intellectual property protection, a well-educated talent pool, and overall a more secure and stable pro-business environment."
"This translates to a higher value," Lim said.
Contrary to conventional wisdom which suggests companies that outsource typically come from higher-cost and labor-short places such as Australia, Japan, Hong Kong and Singapore, companies based in China and India--where labor and operational costs are low--are also outsourcing, the KPMG report said.
The survey found that 55 percent of Indian companies currently outsource their business processes, with another 33 percent planning to do so in the next three years.Lim said: "Companies in Singapore should learn from the Indian experience by focusing their own resources in areas that are business critical, and outsourcing non-core activities elsewhere.
"If done right, [this would] allow a company to focus on its core competencies while accessing skills that are lacking in-house," she said.
Next outsourcing wave
According to the KPMG report, the next wave of business process outsourcing (BPO) will grow far greater than it is now and will "catch up with the levels of IT outsourcing".
"[BPO] will be increasingly pervasive as companies in Asia become more comfortable with entrusting some finance, accounting and human resources functions to outsiders," Lim explained.
Key criteria for companies selecting service providers include language support, as well as country or organizational culture, the report noted.
The survey found that companies in the region outsource a diversity of functions, including IT solutions (54 percent of all respondents), accounting, debt collection and tax processing (35 percent), data collection and report writing (26 percent), human resources (22 percent) and supply chain management (19 percent).
Meanwhile, companies in India are "far more open to outsourcing all kinds of business functions" compared to their peers from the rest of the region, according to the study.
Edge Zarrella, KPMG's global partner in-charge of information risk management noted that "outsourcing is gaining steam and companies with no plans to outsource may soon find themselves at a competitive disadvantage".
However, the report said that even though outsourcing is on the rise, there were certain areas where respondents indicated no plans for outsourcing, including strategic planning, sales and marketing.
Another area that can never be outsourced is accountability, the consulting firm said.
According to Zarrella, "outsourcing business processes doesn't mean [companies] can outsource risk", adding that "in-house executives now, more than ever, need to take responsibility for setting policy, direction and strategy and for seeing that [these are] executed correctly".
The report also predicted that "an explosion in demand may occur if companies start to outsource strategic services such as research and development, engineering and risk management, to remain competitive".
Results of the report, titled Asian outsourcing: the next wave, were released last week and revealed that India and China emerged as the top two most popular destinations by many companies in the region which outsource their business processes. India earned top ranking at 55 percent, followed by China at 36 percent.
At 20 percent, Singapore takes third placing in the survey, which covered a total of 305 senior executives from companies in the Asia-Pacific region. About 43 percent of respondents were based in Singapore, Hong Kong, Malaysia, Japan, Australia and New Zealand. Just under 50 percent of participants were based in India and China.
Singapore was closely trailed by Hong Kong at 16 percent, far ahead of fourth-placed Philippines, at 7 percent, which has been traditionally regarded as a lower cost alternative to India.Lim Yen Suan, Singapore-based director of risk advisory services at KPMG, said: "While not the lowest priced, Singapore offers strong intellectual property protection, a well-educated talent pool, and overall a more secure and stable pro-business environment."
"This translates to a higher value," Lim said.
Contrary to conventional wisdom which suggests companies that outsource typically come from higher-cost and labor-short places such as Australia, Japan, Hong Kong and Singapore, companies based in China and India--where labor and operational costs are low--are also outsourcing, the KPMG report said.
The survey found that 55 percent of Indian companies currently outsource their business processes, with another 33 percent planning to do so in the next three years.Lim said: "Companies in Singapore should learn from the Indian experience by focusing their own resources in areas that are business critical, and outsourcing non-core activities elsewhere.
"If done right, [this would] allow a company to focus on its core competencies while accessing skills that are lacking in-house," she said.
Next outsourcing wave
According to the KPMG report, the next wave of business process outsourcing (BPO) will grow far greater than it is now and will "catch up with the levels of IT outsourcing".
"[BPO] will be increasingly pervasive as companies in Asia become more comfortable with entrusting some finance, accounting and human resources functions to outsiders," Lim explained.
Key criteria for companies selecting service providers include language support, as well as country or organizational culture, the report noted.
The survey found that companies in the region outsource a diversity of functions, including IT solutions (54 percent of all respondents), accounting, debt collection and tax processing (35 percent), data collection and report writing (26 percent), human resources (22 percent) and supply chain management (19 percent).
Meanwhile, companies in India are "far more open to outsourcing all kinds of business functions" compared to their peers from the rest of the region, according to the study.
Edge Zarrella, KPMG's global partner in-charge of information risk management noted that "outsourcing is gaining steam and companies with no plans to outsource may soon find themselves at a competitive disadvantage".
However, the report said that even though outsourcing is on the rise, there were certain areas where respondents indicated no plans for outsourcing, including strategic planning, sales and marketing.
Another area that can never be outsourced is accountability, the consulting firm said.
According to Zarrella, "outsourcing business processes doesn't mean [companies] can outsource risk", adding that "in-house executives now, more than ever, need to take responsibility for setting policy, direction and strategy and for seeing that [these are] executed correctly".
The report also predicted that "an explosion in demand may occur if companies start to outsource strategic services such as research and development, engineering and risk management, to remain competitive".
2/17/2007
Outsourcing: Ripoff Nation
Even entrepreneurs who understand China are getting burned
By now, entrepreneurs who are considering outsourcing their manufacturing to China are aware of the risks: quality problems, postponed deliveries, and the ever-present intellectual-property theft, for starters. A big part of the problem is that U.S. entrepreneurs understand neither the language nor the way business is done in China.
Or so the story goes. But Edward Wu's experience suggests otherwise. Wu is vice-president of Aminco International USA, a 40-employee, $5 million Lake Forest (Calif.) company that makes commemorative pins and other accessories. He's fluent in Mandarin. His Taiwanese mother and his father, born in Mainland China, run the business with Wu and have broad family and social networks there.
A decade ago Aminco moved its manufacturing from Taiwan to China, decreasing production costs by about 20%. Then, about three years ago, Wu began seeing knockoffs of his products—with lower price tags—at conventions and trade shows in the U.S. He says the goods were manufactured by one of Aminco's factories (which he won't name). "We confronted them," says Wu. "They basically gave us some excuses and did not do anything about it." Wu understood that there was little he could do. The factory had simply bypassed him.
Despite efforts by the Chinese government to rein in counterfeiting, experts say manufacturers there can undercut their clients by producing similar products at cheaper prices in as little as two years. And Chinese American entrepreneurs have less of an advantage than one might expect. While they may initially get a leg up, economic factors soon trump everything else. "The Chinese American-owned business that goes to China may get to first base quicker...but the intellectual-piracy issues will not lessen," says Clarence Kwan, national managing partner of Deloitte & Touche's USA Chinese Services Group.
Sometimes a tough negotiating stance can backfire. "If the relationship is not 100% ideal to the Chinese manufacturer, and the margin the U.S. company affords them is slim, the manufacturer knows the enforcement of intellectual-property protection is not very strong," says former small business consultant Michael Chu, whose Web site, ChinaStar101.com, manages travel for entrepreneurs in China.
Piracy needn't be a deterrent to working in China. In 2000, Logic Solutions, a 45-employee, $6 million Ann Arbor (Mich.) software maker, contracted some software development to novice coders in Nanjing. By the time Logic set up its own facility in China years later, the programmers it had trained were working for a U.S. competitor. "I can tell you absolutely we understand how they work, and all of the cultural things, much better than our white-owned counterparts," says Grace Lee, the company's Chinese American CFO. She considers defections just another cost of doing business. The same thing, she says, happens in the U.S.: Think about what happened in the early '80s, when IBM hired Bill Gates to design the operating system for its new PCs.
By now, entrepreneurs who are considering outsourcing their manufacturing to China are aware of the risks: quality problems, postponed deliveries, and the ever-present intellectual-property theft, for starters. A big part of the problem is that U.S. entrepreneurs understand neither the language nor the way business is done in China.
Or so the story goes. But Edward Wu's experience suggests otherwise. Wu is vice-president of Aminco International USA, a 40-employee, $5 million Lake Forest (Calif.) company that makes commemorative pins and other accessories. He's fluent in Mandarin. His Taiwanese mother and his father, born in Mainland China, run the business with Wu and have broad family and social networks there.
A decade ago Aminco moved its manufacturing from Taiwan to China, decreasing production costs by about 20%. Then, about three years ago, Wu began seeing knockoffs of his products—with lower price tags—at conventions and trade shows in the U.S. He says the goods were manufactured by one of Aminco's factories (which he won't name). "We confronted them," says Wu. "They basically gave us some excuses and did not do anything about it." Wu understood that there was little he could do. The factory had simply bypassed him.
Despite efforts by the Chinese government to rein in counterfeiting, experts say manufacturers there can undercut their clients by producing similar products at cheaper prices in as little as two years. And Chinese American entrepreneurs have less of an advantage than one might expect. While they may initially get a leg up, economic factors soon trump everything else. "The Chinese American-owned business that goes to China may get to first base quicker...but the intellectual-piracy issues will not lessen," says Clarence Kwan, national managing partner of Deloitte & Touche's USA Chinese Services Group.
Sometimes a tough negotiating stance can backfire. "If the relationship is not 100% ideal to the Chinese manufacturer, and the margin the U.S. company affords them is slim, the manufacturer knows the enforcement of intellectual-property protection is not very strong," says former small business consultant Michael Chu, whose Web site, ChinaStar101.com, manages travel for entrepreneurs in China.
Piracy needn't be a deterrent to working in China. In 2000, Logic Solutions, a 45-employee, $6 million Ann Arbor (Mich.) software maker, contracted some software development to novice coders in Nanjing. By the time Logic set up its own facility in China years later, the programmers it had trained were working for a U.S. competitor. "I can tell you absolutely we understand how they work, and all of the cultural things, much better than our white-owned counterparts," says Grace Lee, the company's Chinese American CFO. She considers defections just another cost of doing business. The same thing, she says, happens in the U.S.: Think about what happened in the early '80s, when IBM hired Bill Gates to design the operating system for its new PCs.
Nanjing to welcome Indian software giant
India's fourth-largest software enterprise, Satyam Computer Services Ltd., has announced it will create a branch company in Nanjing, capital city of east China's Jiangsu Province.
Operating out of Nanjing Software Park in the city's New and High Technology Industry Development Zone, the software outsourcing firm will recruit 2,500 software engineers and should see annual sales increase by over 10 billion yuan (US$1.3 billion).
Qi Lu, an administrative official in the zone, on Sunday said that the new Satyam branch would both increase competitiveness among local software firms and serve to attract more Indian and other international software giants to Nanjing.
The campus-style park provides lodging and other amenities, and is set to attract over 300 software companies, Qi added.
V. Murali, Senior Vice President of Satyam Corporate Headquarters, said: "China is destined to become the world's No.2 outsourcing base, next only to India, and we are confident about the market there."
Nanjing Software Park, approved by the Ministry of Science and Technology as a "Torch Plan" software industrial base, has so far met with encouraging success, attracting 240 software companies with over 13,000 workers.
Nanjing is Satyam's fifth foray in China, joining its branches in Shanghai, Beijing, Shenzhen and Dalian.
In 2006, Satyam generated worldwide sales revenue of over US$1.5 billion from software and IT services.
Operating out of Nanjing Software Park in the city's New and High Technology Industry Development Zone, the software outsourcing firm will recruit 2,500 software engineers and should see annual sales increase by over 10 billion yuan (US$1.3 billion).
Qi Lu, an administrative official in the zone, on Sunday said that the new Satyam branch would both increase competitiveness among local software firms and serve to attract more Indian and other international software giants to Nanjing.
The campus-style park provides lodging and other amenities, and is set to attract over 300 software companies, Qi added.
V. Murali, Senior Vice President of Satyam Corporate Headquarters, said: "China is destined to become the world's No.2 outsourcing base, next only to India, and we are confident about the market there."
Nanjing Software Park, approved by the Ministry of Science and Technology as a "Torch Plan" software industrial base, has so far met with encouraging success, attracting 240 software companies with over 13,000 workers.
Nanjing is Satyam's fifth foray in China, joining its branches in Shanghai, Beijing, Shenzhen and Dalian.
In 2006, Satyam generated worldwide sales revenue of over US$1.5 billion from software and IT services.
THOLONS announces services globalisation trends for 2007
Services globalisation is now a key strategic imperative for successful enterprises and will be the single most important factor shaping how services are developed and delivered across the globe. Globalisation has evolved from individual companies leveraging a few resources offshore to countries now vying to be the next destination for technology and business process outsourcing.
The 10 key future trends for 2007 are:
* SMEs driven by private equity investors will become significant participants in services globalisation.
Tholons report states that the year 2007 will be that of SMEs, who will play a significant role in the services globalisation arena. Anticipating the next wave, Private Equity (PE) investors, who are flush with funds, are all set to power the SMEs by investing up to $5 billion in the Indian market to fund the expansion plans of Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) firms.
* Firms will adopt the “Cities of Excellence” model, sourcing services from the best location for respective ITO and BPO domains
Cities such as Prague, Halifax, Budapest, Warsaw, Pune, and Bucharest are already centers for outsourcing but they are becoming more expensive and less differentiated. As a result, other cities such as Bratislava, Ho Chi Minh City, Kolkata, Xi’an, Buenos Aires, Krakow, Colombo, Dubai and Sofia are on their way to becoming centers of outsourcing in 2007.
* Multi-sourcing will dominate as mega-deals will be sourced to a mix of Tier I and “best of breed” Tier II service providers
Many of the large contracts that are up for renewal in 2007 will be restructured considering multi-sourcing. Organisations will have a preferred set of service providers comprised of large tier I and “best of breed” tier II providers and niche tier III suppliers. The number of small to medium-sized contracts (those worth $50-$200 million) will see a significant increase when compared to previous years. The trend now is toward more contracts that are smaller in size with specific function, which will in turn lead to multiple providers.
* ITO and BPO growth will be supply constrained in an extremely strong demand market
Due to changing market dynamism service providers with predominantly onshore delivery capabilities are facing significant challenges because clients now want a significant part of their outsourcing to be handled from offshore locations. Service providers would start executing starkly different strategies to emerge as leading global service providers. Onshore service providers will continue to expand globally in their search for cost optimisation and to cater to the huge demand, while offshore service providers will grow their business both organically and inorganically. And finally, market leaders in the industry will be shaped by their execution capabilities and their ability to scale up to meet the massive demand of services globalisation.
* Globally service providers will witness a significant resource crunch
In the coming years, India, the Philippines and China will face shortage of talent pool as there would be a significant increase for ITO and BPO services globally. The emergence of more players in this arena would give rise to wage inflation and higher attrition rate.
* Engineering Services, R&D, ERP, Infrastructure Management, Product Development and Healthcare will see increased traction in 2007
In the rapidly expanding ITO and BPO industry, there are a few sectors that are expanding more rapidly than others. These are sectors that will witness growth rates beyond the industry average. Engineering and R&D services specifically will form a significant part of many service providers revenues and will also contribute significantly to the total outsourcing market. Adoption of globalisation in Europe will accelerate resulting in strong demand.
* Captives will see heightened activity in 2007, with parent companies considering spin-offs to cash out
Of the estimated 700 BPO companies in India and Philippines, 65 percent are captive and 35 percent are third-party vendors. More captives will be established in 2007 with the demand from the global SME segment increasing. This trend will continue in niche areas for reasons of skill availability, intellectual property and information security issues.
Over the years, many suppliers have developed skill sets in general processes and improved upon them. One reason for multinational companies to sell is that there are big global outsourcing firms that can now easily handle their needs, so maintaining an in-house unit simply doesn’t make sense. To cash in on the opportunities, British Airways sold its captive unit in 2002, while Capgemini bought out Unilever’s majority stake in Indigo, a captive finance and accounting services BPO. Similar deals are in pipeline.
* Offshoring of customer-facing processes will slow down, and some may move back onshore or nearshore
During 2007, Tholons foresees a trend where companies that have tasted success in moving higher end processes overseas will try to increase the speed of outsourcing for these services.
Many companies will move beyond the hype cycle that surrounded globalisation and start rationalisation of their portfolios for onshore – offshore delivery.
* Tier II and Tier III service providers will spread their global footprint acquisitions
For the last few years, most of the Tier-I offshore service providers have been rapidly expanding globally. In 2007, tier-II and tier-III service providers will aggressively scout to expand inorganically and will look at expanding their services to countries outside their home base.
2007 will see service providers undertaking M&A to acquire delivery capabilities, specifically in complimentary markets such as the Philippines, Vietnam and the emerging economies of Eastern Europe. Service providers from these economies will actively make acquisitions in India as India emerges as a must have destination for client market (US, Europe etc.) access.
India will continue to be the leading destination for ITO and BPO. Philippines will be a strong but a distant second while China will trail behind for next several years.
While 2007 will see India’s stature as the world’s back office growing, the Philippines will evolve as the preferred destination for offshoring customer-facing jobs based on the benefits of cost reduction, manpower availability, and quality that it brings to global organisations. Some important factors that might work in favor of Philippines include factors such as a committed and highly trainable workforce, strong cultural affinity with the west, and the expansion of existing BPO firms.
China has challenges with english language fluency, cultural implications and Intellectual Property Rights (IPR). They have a lot of work to do to catch up, so it will be several years before Chinese services companies make their mark on the global ITO and BPO landscape.
The 10 key future trends for 2007 are:
* SMEs driven by private equity investors will become significant participants in services globalisation.
Tholons report states that the year 2007 will be that of SMEs, who will play a significant role in the services globalisation arena. Anticipating the next wave, Private Equity (PE) investors, who are flush with funds, are all set to power the SMEs by investing up to $5 billion in the Indian market to fund the expansion plans of Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) firms.
* Firms will adopt the “Cities of Excellence” model, sourcing services from the best location for respective ITO and BPO domains
Cities such as Prague, Halifax, Budapest, Warsaw, Pune, and Bucharest are already centers for outsourcing but they are becoming more expensive and less differentiated. As a result, other cities such as Bratislava, Ho Chi Minh City, Kolkata, Xi’an, Buenos Aires, Krakow, Colombo, Dubai and Sofia are on their way to becoming centers of outsourcing in 2007.
* Multi-sourcing will dominate as mega-deals will be sourced to a mix of Tier I and “best of breed” Tier II service providers
Many of the large contracts that are up for renewal in 2007 will be restructured considering multi-sourcing. Organisations will have a preferred set of service providers comprised of large tier I and “best of breed” tier II providers and niche tier III suppliers. The number of small to medium-sized contracts (those worth $50-$200 million) will see a significant increase when compared to previous years. The trend now is toward more contracts that are smaller in size with specific function, which will in turn lead to multiple providers.
* ITO and BPO growth will be supply constrained in an extremely strong demand market
Due to changing market dynamism service providers with predominantly onshore delivery capabilities are facing significant challenges because clients now want a significant part of their outsourcing to be handled from offshore locations. Service providers would start executing starkly different strategies to emerge as leading global service providers. Onshore service providers will continue to expand globally in their search for cost optimisation and to cater to the huge demand, while offshore service providers will grow their business both organically and inorganically. And finally, market leaders in the industry will be shaped by their execution capabilities and their ability to scale up to meet the massive demand of services globalisation.
* Globally service providers will witness a significant resource crunch
In the coming years, India, the Philippines and China will face shortage of talent pool as there would be a significant increase for ITO and BPO services globally. The emergence of more players in this arena would give rise to wage inflation and higher attrition rate.
* Engineering Services, R&D, ERP, Infrastructure Management, Product Development and Healthcare will see increased traction in 2007
In the rapidly expanding ITO and BPO industry, there are a few sectors that are expanding more rapidly than others. These are sectors that will witness growth rates beyond the industry average. Engineering and R&D services specifically will form a significant part of many service providers revenues and will also contribute significantly to the total outsourcing market. Adoption of globalisation in Europe will accelerate resulting in strong demand.
* Captives will see heightened activity in 2007, with parent companies considering spin-offs to cash out
Of the estimated 700 BPO companies in India and Philippines, 65 percent are captive and 35 percent are third-party vendors. More captives will be established in 2007 with the demand from the global SME segment increasing. This trend will continue in niche areas for reasons of skill availability, intellectual property and information security issues.
Over the years, many suppliers have developed skill sets in general processes and improved upon them. One reason for multinational companies to sell is that there are big global outsourcing firms that can now easily handle their needs, so maintaining an in-house unit simply doesn’t make sense. To cash in on the opportunities, British Airways sold its captive unit in 2002, while Capgemini bought out Unilever’s majority stake in Indigo, a captive finance and accounting services BPO. Similar deals are in pipeline.
* Offshoring of customer-facing processes will slow down, and some may move back onshore or nearshore
During 2007, Tholons foresees a trend where companies that have tasted success in moving higher end processes overseas will try to increase the speed of outsourcing for these services.
Many companies will move beyond the hype cycle that surrounded globalisation and start rationalisation of their portfolios for onshore – offshore delivery.
* Tier II and Tier III service providers will spread their global footprint acquisitions
For the last few years, most of the Tier-I offshore service providers have been rapidly expanding globally. In 2007, tier-II and tier-III service providers will aggressively scout to expand inorganically and will look at expanding their services to countries outside their home base.
2007 will see service providers undertaking M&A to acquire delivery capabilities, specifically in complimentary markets such as the Philippines, Vietnam and the emerging economies of Eastern Europe. Service providers from these economies will actively make acquisitions in India as India emerges as a must have destination for client market (US, Europe etc.) access.
India will continue to be the leading destination for ITO and BPO. Philippines will be a strong but a distant second while China will trail behind for next several years.
While 2007 will see India’s stature as the world’s back office growing, the Philippines will evolve as the preferred destination for offshoring customer-facing jobs based on the benefits of cost reduction, manpower availability, and quality that it brings to global organisations. Some important factors that might work in favor of Philippines include factors such as a committed and highly trainable workforce, strong cultural affinity with the west, and the expansion of existing BPO firms.
China has challenges with english language fluency, cultural implications and Intellectual Property Rights (IPR). They have a lot of work to do to catch up, so it will be several years before Chinese services companies make their mark on the global ITO and BPO landscape.
China Shakes the World: The Rise of a Hungry Nation
By James Kynge, London, Weidenfeld & Nicolson, 2006.
Decades ago after the Bolshevik Revolution, a well-known journalist visited Soviet Russia and concluded famously, "I have seen the future and it works." Now as the 21st century dawns, the leading correspondent for London’s Financial Times has visited China and returned profoundly shaken, mumbling figuratively "I’ve seen the future and it is frightening." He is fearful that China’s rise spells ill for the destiny of imperialism worldwide.
It is well, in any case, to juxtapose the former Soviet Union with China since in explicating the demise of the former, the role of the latter—particularly after the infamous journey some 35 years ago to Beijing by then President Richard M. Nixon---was critical. But, as it turns out, future historians will no doubt view the U.S. entente with China as one of the most transformative alliances since France aided the struggling rebels in North America defeat the British Empire or since London allied with Tokyo at the beginning of the previous century in order to—supposedly—guarantee British interests in Asia. For the opening of China to inward investment from the U.S., Europe and Japan has served to create what may turn out to be this century’s juggernaut with titanic consequences for white supremacy, imperialism and world socialism alike.
The author first traveled to China in 1982 as an undergraduate student where he learned to speak the language and has spent about two decades there and is, thus, well-positioned to assess its progress. His book consists mostly of striking vignettes and intriguing word pictures of contemporary China. He has concluded that "China’s ascent now mirrors that of the U.S. in the second half of the nineteenth century." As he sees it, China’s rise represents "a challenge unprecedented in the annals of global capitalism." As he sees it, "in many areas of manufacturing, European [and North American] companies cannot compete in the longer run—no matter what countermeasures they…may take." The author concludes, "it is, in fact, difficult to think of an area of technology in which China does not have credible ambitions to lead the world." China, he argues, "can drive down the average level of working wages and the prices of manufactured products worldwide, while propelling the prices of most sources of energy and commodities through the roof."
Unfortunately, the author ascribes many of the problems now befalling the working class in Europe and North America to the rise of China, as opposed to the rapaciousness of the bourgeoisie. "The McKinsey Global Institute," he says, "in a global study on outsourcing, has calculated that 9.6 million U.S. service jobs could theoretically be sent offshore today. If that was actually to happen, the U.S. unemployment rate would rise to 11.4 per cent from 5 per cent in mid 2005…..these trends taken together foreshadow a political crisis," responsibility for which he lays at China’s doorstep.
But a close reading of the author’s own words belie this questionable hypothesis. For example, he notes in passing in 2004 "participation numbers at the annual international Science and Engineering Fair run by Intel, the U.S. semiconductor company," reveal that "in the U.S., 65,000 students participated in local fairs to select finalists. In China, six million did." Now should Beijing be blamed because the U.S. ruling elite in its tax-cutting mania and its blatant racism refuses to spend wisely on public education?
Slowly but surely bourgeois commentators are coming to have increasing doubts about the rise of China and what led to it. There is an "uncomfortable paradox," says the author: "China owes its emergence in large part to the free-trade system created by America since the war, but in many ways it is still not a creature of that system. In several aspects, its economy, political system, culture, military posture and values are different from most of the other nations that have reached maturity under the Pax Americana."
Like many in Washington and Brussels, the author is concerned with China’s foreign policy, its developing ties with Russia, Venezuela, Zimbabwe, Sudan, Iran, and other regimes that the international bourgeoisie finds distasteful. He is concerned about the rising levels of Chinese investment in North America and Western Europe, as Beijing has "flipped the script." More than this, however, is the dawning realization that—unlike the recent past—world imperialism may be incapable of doing anything meaningful about China at this late date. This is so not least because of a factor that the author fails to stress: the central bank in China has accumulated a hoard of foreign currencies, worth a whopping $1 trillion at last count, and has been loaning this capital to the guardian protector of world imperialism in Washington, which has been forced to borrow because of its obscene profligacy in military spending and, again, its tax cutting mania. The financial dependence of the U.S. on China tremendously constrains the latitude of imperialism generally.
Thus, one closes this book with mixed feelings: it is well worth reading because of the colorful eyewitness descriptions of what is unfolding in the planet’s most populous nation but, like others before him, the author does not come to grips with the unavoidable fact that the long-time, long-term policy of anti-Sovietism—which drove the opening to China—may, ironically, have sealed the gloomy fate of world imperialism.
Decades ago after the Bolshevik Revolution, a well-known journalist visited Soviet Russia and concluded famously, "I have seen the future and it works." Now as the 21st century dawns, the leading correspondent for London’s Financial Times has visited China and returned profoundly shaken, mumbling figuratively "I’ve seen the future and it is frightening." He is fearful that China’s rise spells ill for the destiny of imperialism worldwide.
It is well, in any case, to juxtapose the former Soviet Union with China since in explicating the demise of the former, the role of the latter—particularly after the infamous journey some 35 years ago to Beijing by then President Richard M. Nixon---was critical. But, as it turns out, future historians will no doubt view the U.S. entente with China as one of the most transformative alliances since France aided the struggling rebels in North America defeat the British Empire or since London allied with Tokyo at the beginning of the previous century in order to—supposedly—guarantee British interests in Asia. For the opening of China to inward investment from the U.S., Europe and Japan has served to create what may turn out to be this century’s juggernaut with titanic consequences for white supremacy, imperialism and world socialism alike.
The author first traveled to China in 1982 as an undergraduate student where he learned to speak the language and has spent about two decades there and is, thus, well-positioned to assess its progress. His book consists mostly of striking vignettes and intriguing word pictures of contemporary China. He has concluded that "China’s ascent now mirrors that of the U.S. in the second half of the nineteenth century." As he sees it, China’s rise represents "a challenge unprecedented in the annals of global capitalism." As he sees it, "in many areas of manufacturing, European [and North American] companies cannot compete in the longer run—no matter what countermeasures they…may take." The author concludes, "it is, in fact, difficult to think of an area of technology in which China does not have credible ambitions to lead the world." China, he argues, "can drive down the average level of working wages and the prices of manufactured products worldwide, while propelling the prices of most sources of energy and commodities through the roof."
Unfortunately, the author ascribes many of the problems now befalling the working class in Europe and North America to the rise of China, as opposed to the rapaciousness of the bourgeoisie. "The McKinsey Global Institute," he says, "in a global study on outsourcing, has calculated that 9.6 million U.S. service jobs could theoretically be sent offshore today. If that was actually to happen, the U.S. unemployment rate would rise to 11.4 per cent from 5 per cent in mid 2005…..these trends taken together foreshadow a political crisis," responsibility for which he lays at China’s doorstep.
But a close reading of the author’s own words belie this questionable hypothesis. For example, he notes in passing in 2004 "participation numbers at the annual international Science and Engineering Fair run by Intel, the U.S. semiconductor company," reveal that "in the U.S., 65,000 students participated in local fairs to select finalists. In China, six million did." Now should Beijing be blamed because the U.S. ruling elite in its tax-cutting mania and its blatant racism refuses to spend wisely on public education?
Slowly but surely bourgeois commentators are coming to have increasing doubts about the rise of China and what led to it. There is an "uncomfortable paradox," says the author: "China owes its emergence in large part to the free-trade system created by America since the war, but in many ways it is still not a creature of that system. In several aspects, its economy, political system, culture, military posture and values are different from most of the other nations that have reached maturity under the Pax Americana."
Like many in Washington and Brussels, the author is concerned with China’s foreign policy, its developing ties with Russia, Venezuela, Zimbabwe, Sudan, Iran, and other regimes that the international bourgeoisie finds distasteful. He is concerned about the rising levels of Chinese investment in North America and Western Europe, as Beijing has "flipped the script." More than this, however, is the dawning realization that—unlike the recent past—world imperialism may be incapable of doing anything meaningful about China at this late date. This is so not least because of a factor that the author fails to stress: the central bank in China has accumulated a hoard of foreign currencies, worth a whopping $1 trillion at last count, and has been loaning this capital to the guardian protector of world imperialism in Washington, which has been forced to borrow because of its obscene profligacy in military spending and, again, its tax cutting mania. The financial dependence of the U.S. on China tremendously constrains the latitude of imperialism generally.
Thus, one closes this book with mixed feelings: it is well worth reading because of the colorful eyewitness descriptions of what is unfolding in the planet’s most populous nation but, like others before him, the author does not come to grips with the unavoidable fact that the long-time, long-term policy of anti-Sovietism—which drove the opening to China—may, ironically, have sealed the gloomy fate of world imperialism.
Tata Launches Outsourcing Group in China
India’s largest software and services outsourcer, Tata Consultancy Services (TCS), on Tuesday inaugurated its outsourcing joint venture in China, which is likely to have Microsoft as a minority investor.
The joint venture, first announced in 2005, has TCS as a majority partner holding 65 percent of the equity, and three Chinese partners, including two software parks, holding 25 percent. Microsoft is expected to pick up 10 percent of the equity in the company, TCS said.
The joint venture operates at the Beijing Zhongguancun Software Park, and will address the domestic Chinese market and global markets. The software parks investing in the joint venture are Beijing Zhongguancun Software Park Development and the Tianjin Huayuan Software Park Construction and Development Co. The third partner in the joint venture is a software company, Uniware in Beijing.
The cooperative project has been initiated and supported by China’s National Development and Reforms Commission.
TCS and its Indian competitors, such as Infosys Technologies and Satyam Computer Services, already have software development facilities in China. Indian outsourcers are expanding in China both to service the Chinese operations of multinational companies and to target the domestic market, and neighboring markets like Japan.
China has also invited Indian companies to set up operations there to help develop its own software and services outsourcing industry.
By being part of a joint venture steered by a Chinese government agency, TCS may have an edge over Indian competitors for government business. The company announced Tuesday that it bagged an order to implement a currency trading system for China Foreign Exchange Trade System, an arm of the People’s Bank of China, the country’s central bank.
The joint venture, first announced in 2005, has TCS as a majority partner holding 65 percent of the equity, and three Chinese partners, including two software parks, holding 25 percent. Microsoft is expected to pick up 10 percent of the equity in the company, TCS said.
The joint venture operates at the Beijing Zhongguancun Software Park, and will address the domestic Chinese market and global markets. The software parks investing in the joint venture are Beijing Zhongguancun Software Park Development and the Tianjin Huayuan Software Park Construction and Development Co. The third partner in the joint venture is a software company, Uniware in Beijing.
The cooperative project has been initiated and supported by China’s National Development and Reforms Commission.
TCS and its Indian competitors, such as Infosys Technologies and Satyam Computer Services, already have software development facilities in China. Indian outsourcers are expanding in China both to service the Chinese operations of multinational companies and to target the domestic market, and neighboring markets like Japan.
China has also invited Indian companies to set up operations there to help develop its own software and services outsourcing industry.
By being part of a joint venture steered by a Chinese government agency, TCS may have an edge over Indian competitors for government business. The company announced Tuesday that it bagged an order to implement a currency trading system for China Foreign Exchange Trade System, an arm of the People’s Bank of China, the country’s central bank.
Managing Risks for Rewards: The Case of Outsourcing Innovation - New Proposal Submited
Organizations face a daunting challenge in managing the risks associated with the outsourcing of innovation. Most organizations have realized that they cannot reach business goals by conducting all activities internally. Cooperating with business partners and leveraging the know-how found in an organization's midst is a salient determinant of competitive successes. Many organizations struggle to increase the intensity and success of partnerships.
When organizations outsourced only manufacturing, business partners simply assembled raw materials. Business partnerships then moved to simple knowledge work, as was the case when the outsourcing of software development and IS maintenance efforts became popular in the mid-1980s. Today, leading organizations rely on their business partners for innovation and process goals. The outsourcing of innovation involves engaging with business partners in ways that are significantly binding and have strategic implications.
In all the above cases, we notice several interesting things – (1) in innovation-based outsourcing programs both parties are engaged in developing novel products and services, (2) the chances of the two parties successfully meeting their objectives is very low as the project space is undefined and new, with a greater chance of failure, (3) these alliances are premised on the fact that both parties will gain, and if they gain will share the rents and royalties, and (4) the knowledge sharing and intellectual property issues within (and around) these alliances is emerging and sometimes indeterminate.
This research project aims to examine the issues surrounding the management of innovation outsourcing programs. In particular, we seek answers to the following questions:
1. How do organizations make decisions to engage in the outsourcing of innovation? To this end, we will seek to evaluate the various methods that are used by organizations to identify critical areas, capabilities, and spaces for outsourcing. Research into the goals and objectives of outsourcing for innovation can inform executives about potentials for alignment of goals and objectives with outsourcing partners.
2. How do organizations choose business partners for the outsourcing of innovation? This type of partnership is different from finding a business partner for traditional outsourcing efforts, e.g. the sourcing of manufacturing or well-defined knowledge work. Outsourcing of innovation requires finding business partners who have specialized knowledge in a given arena, and business partners who can work in concert with an organization to come up with new products and services.
Being able to manage risks becomes critical here. A traditional, established organization might seem to be less risky, but the value of such an engagement may not be high. Larger firms may be predisposed towards economies of scale, and may not be interested in tailoring efforts to meet the specifics of the organization. On the other hand, an upcoming firm might be riskier, but the rewards might be higher.
3. How do organizations manage issues surrounding the governance of innovation? Issues here include the development of robust knowledge sharing programs that capture all of the information needed to implement and refine innovations that emerge from outside the organization. Furthermore, what are the procedures in place to secure intellectual property during these outsourcing transactions? Finally, what are the models used to share rewards, costs and incentives with business partners?
4. How do organizations manage their portfolio of relationships? Most organizations have multiple relationships and the management of these can be quite tricky. How do organizations develop models to manage these relationships? Some organizations have created an Office of Alliance Management (e.g. Eli Lilly), while others decentralize the management of relationships to functional groups.
5. How do organizations manage the risks associated with outsourcing of innovation? While the outsourcing of innovation has many benefits, it has an equal amount of risks. For instance, what happens if an organization realizes that the business partner has not lived up to expectations? How are issues surrounding new product development managed? What about the case where a business partner acts with guile and compromises the organization’s intellectual assets?
6. What are the critical success factors and drivers behind successful management of outsourcing programs? Are any of the five issues discussed above crucial to all outsourcing for innovation programs? What differences exist in successful outsourcing for innovation, and can we explain those differences based on the data? The ability to scale innovation projects and to sustain long-term business advantages through this kind of innovation requires an understanding of management processes for outsourcing for innovation.
When organizations outsourced only manufacturing, business partners simply assembled raw materials. Business partnerships then moved to simple knowledge work, as was the case when the outsourcing of software development and IS maintenance efforts became popular in the mid-1980s. Today, leading organizations rely on their business partners for innovation and process goals. The outsourcing of innovation involves engaging with business partners in ways that are significantly binding and have strategic implications.
In all the above cases, we notice several interesting things – (1) in innovation-based outsourcing programs both parties are engaged in developing novel products and services, (2) the chances of the two parties successfully meeting their objectives is very low as the project space is undefined and new, with a greater chance of failure, (3) these alliances are premised on the fact that both parties will gain, and if they gain will share the rents and royalties, and (4) the knowledge sharing and intellectual property issues within (and around) these alliances is emerging and sometimes indeterminate.
This research project aims to examine the issues surrounding the management of innovation outsourcing programs. In particular, we seek answers to the following questions:
1. How do organizations make decisions to engage in the outsourcing of innovation? To this end, we will seek to evaluate the various methods that are used by organizations to identify critical areas, capabilities, and spaces for outsourcing. Research into the goals and objectives of outsourcing for innovation can inform executives about potentials for alignment of goals and objectives with outsourcing partners.
2. How do organizations choose business partners for the outsourcing of innovation? This type of partnership is different from finding a business partner for traditional outsourcing efforts, e.g. the sourcing of manufacturing or well-defined knowledge work. Outsourcing of innovation requires finding business partners who have specialized knowledge in a given arena, and business partners who can work in concert with an organization to come up with new products and services.
Being able to manage risks becomes critical here. A traditional, established organization might seem to be less risky, but the value of such an engagement may not be high. Larger firms may be predisposed towards economies of scale, and may not be interested in tailoring efforts to meet the specifics of the organization. On the other hand, an upcoming firm might be riskier, but the rewards might be higher.
3. How do organizations manage issues surrounding the governance of innovation? Issues here include the development of robust knowledge sharing programs that capture all of the information needed to implement and refine innovations that emerge from outside the organization. Furthermore, what are the procedures in place to secure intellectual property during these outsourcing transactions? Finally, what are the models used to share rewards, costs and incentives with business partners?
4. How do organizations manage their portfolio of relationships? Most organizations have multiple relationships and the management of these can be quite tricky. How do organizations develop models to manage these relationships? Some organizations have created an Office of Alliance Management (e.g. Eli Lilly), while others decentralize the management of relationships to functional groups.
5. How do organizations manage the risks associated with outsourcing of innovation? While the outsourcing of innovation has many benefits, it has an equal amount of risks. For instance, what happens if an organization realizes that the business partner has not lived up to expectations? How are issues surrounding new product development managed? What about the case where a business partner acts with guile and compromises the organization’s intellectual assets?
6. What are the critical success factors and drivers behind successful management of outsourcing programs? Are any of the five issues discussed above crucial to all outsourcing for innovation programs? What differences exist in successful outsourcing for innovation, and can we explain those differences based on the data? The ability to scale innovation projects and to sustain long-term business advantages through this kind of innovation requires an understanding of management processes for outsourcing for innovation.
2/14/2007
Outsourcing will grow, Input predicts
Despite recent expressions of concern from government officials and Congress, there seems to be no end to the steady outflow of government information technology work to contractors, and Input predicts an outsourcing market worth nearly $18 billion within five years.
The marketing and consulting company cites the effects of an impending federal IT workforce shortage as older workers retire, the demands of the war in Iraq and a slowdown in federal contract spending as reasons for the increase.
The biggest growth will come in the areas of business process outsourcing and application services, with a notable switch to smaller contracts and multi-sourcing arrangements and away from bigger deals, the company says.
Trina Dinavo, senior federal market analyst at Input, says there is a self-reinforcing loop at play in the market.
“Increasingly, as agencies outsource more core activities, they may not necessarily want to compete business as an [Office of Management and Budget Circular] A-76 competition when they can multi-source to procure needed services at a much faster rate,” she said.
Also, as the new Congress questions their competitive sourcing strategies, Dinavo expects agencies use outsourcing more often as a path of least resistance.
However, the most important factor that will cause the outsourcing market to expand to an estimated $17.7 billion in fiscal year 2011 from $13.3 billion in fiscal 2006 will be the retirement of the older generation of government IT workers, she said.
The marketing and consulting company cites the effects of an impending federal IT workforce shortage as older workers retire, the demands of the war in Iraq and a slowdown in federal contract spending as reasons for the increase.
The biggest growth will come in the areas of business process outsourcing and application services, with a notable switch to smaller contracts and multi-sourcing arrangements and away from bigger deals, the company says.
Trina Dinavo, senior federal market analyst at Input, says there is a self-reinforcing loop at play in the market.
“Increasingly, as agencies outsource more core activities, they may not necessarily want to compete business as an [Office of Management and Budget Circular] A-76 competition when they can multi-source to procure needed services at a much faster rate,” she said.
Also, as the new Congress questions their competitive sourcing strategies, Dinavo expects agencies use outsourcing more often as a path of least resistance.
However, the most important factor that will cause the outsourcing market to expand to an estimated $17.7 billion in fiscal year 2011 from $13.3 billion in fiscal 2006 will be the retirement of the older generation of government IT workers, she said.
2/12/2007
China 's Beyondsoft to enter Indian market
Mumbai: One of China's leading IT services companies, Beyondsoft Co. Ltd. is planning to enter India's booming IT/BPO segment by the end of the first quarter of fiscal 2007-08. "We are planning to enter India in a very big way in the BPO and ITO (information technology outsourcing) sectors," Jonathan C.Chu, vice president, Beyondsoft, said on the margins of the India Leadership Forum organized by NASSCOM (National Association of Software and Service Companies) in Mumbai. Refusing to give any financial details Chu said, "We are planning to invest several million dollars in Mumbai." The company works for global software giants such as Microsoft, IBM, HP, SAP and Oracle in software development, testing and localization, and it has grown from a small firm of 100 people in 2001 to one of China's major software outsourcing providers.
The $45 million group now employs 800 developers and boasts of headcount of over 1600. "We will open our first unit by the first quarter of the coming fiscal. We plan to hire over 100 people in our first year of operation and our revenue target for the first year would be over $1 million - $2 million," Chu added. "India is a very strategic market for us and we hope to grow in Mumbai. The IT market in Mumbai is more sophisticated and mature whereas Chinese companies are gradually coming up."
The $45 million group now employs 800 developers and boasts of headcount of over 1600. "We will open our first unit by the first quarter of the coming fiscal. We plan to hire over 100 people in our first year of operation and our revenue target for the first year would be over $1 million - $2 million," Chu added. "India is a very strategic market for us and we hope to grow in Mumbai. The IT market in Mumbai is more sophisticated and mature whereas Chinese companies are gradually coming up."
Infosys bullish on Europe, China
IT bellwether Infosys Technologies Ltd Thursday said it is looking for greater access into markets in China and Europe.
"We already have presence there but we are on a lookout for more acquisitions to have a greater access on their markets," Nandan Nilekani, chief executive of Infosys, said on the sidelines of the India Leadership Forum organised here by the National Association of Software and Service Companies (NASSCOM).
"Europe is one of our fastest growing markets where we are growing at a rate of 60 per cent and where our revenues have gone up to 21 per cent from six percent," Nilekani added.
"In China we have 700 people working. We will discuss about our acquisition by the end of this quarter."
"We already have presence there but we are on a lookout for more acquisitions to have a greater access on their markets," Nandan Nilekani, chief executive of Infosys, said on the sidelines of the India Leadership Forum organised here by the National Association of Software and Service Companies (NASSCOM).
"Europe is one of our fastest growing markets where we are growing at a rate of 60 per cent and where our revenues have gone up to 21 per cent from six percent," Nilekani added.
"In China we have 700 people working. We will discuss about our acquisition by the end of this quarter."
2/11/2007
Outsourcing, Off-Shoring: Truth and Consequences
Outsourcing and Off-Shoring are not new ideas or a new way of doing things. Companies have been moving manufacturing to lower cost of production centers since the sixties and services since the late eighties. It isn’t new but once service outsourcing received the stamp of approval from mainstream media it has increasingly been perceived as a panacea for all ills that are impacting the company. Of course outsourcing/off-shoring won’t solve all a companies ills, it can if, executed well, it can reduce the cost of delivering service. But there are risks in outsourcing: degrading service quality, eroding customer loyalty and negatively impacting employee morale. So how can a company determine when and where to employ outsourcing/off-shoring and estimate what the savings might really be? In this article we will examine a number of questions that a company should ask when considering outsourcing the provision of service to help gain a realistic perspective or what they can achieve through outsourcing or off-shoring.
First a couple of definitions:
Outsourcing is the use of an independent company to provide services that previously were delivered by a companies own staff.
Off-Shoring is the use of resources that are located in a country remote to the company.
Both of these concepts can be executed independently or in combination. There are domestic outsource service providers, there are off-shore outsource service providers and there are captive (company operated) off-shore service providers. Another term that comes up in discussions of outsourcing and off-shoring is ‘near-shoring’ the provision of services in another country, but one that is close both geographically as well as culturally.
The news has been full of outsourcing stories gone bad…British Rail outsourcing their call center to India and then telling customers that they cannot book a ‘slipper car’, when the customer wanted a ‘sleeper car’. Dell has publicly announced moving support services to India and then publicly returning it to the US. An automaker outsourced technical support for their mechanics to India only to have the mechanics boycott the center and ultimately bring it back to the US. In the latter two cases the costs to move the business off-shore and then to bring it back cost significantly more than leaving it alone in the first place. What were the company executives thinking when they made their original decisions, did they ask themselves and their organizations the right questions?
The media message related to outsourcing is that companies can save 40, 50 even 60% of their processing costs simply by moving the services to an off-shore location like India or the Philippines. The truth is quite different while the costs of labor in off-shore locations are significantly less than the costs to operate domestically (often less than half), there are other costs which can be significant. These additional costs include: Management costs; to support a service operation half way around the world requires a team of staff to support this initiative, Systems and networks need to be expanded and secured, Travel costs to deliver trainings and to attend meetings is not insignificant in terms of both costs and senior management time. So what is the bottom line? According to Gartner the average savings a company actually achieves is only 12%. Savings greater than 12% can often be achieved domestically by streamlining or reengineering the current operational model. In call and contact centers we often se organizations that save 20% to 30% by improving the existing center.
So what should a company consider when considering outsourcing and/or off-shoring? First, we must understand what the nature of the services that are being provided. Specifically we must look at whether the service provides direct interaction with customers. Back office processes where no customer interaction are the easiest services to move to an outsource and/or off-shore provider. This assessment focuses almost exclusively on the price and quality of the work that will be completed. But where the service involves direct interaction with customer such as a call center the assessment becomes far more complicated. For simplicity’s sake we can classify customer interactions into two categories: those that are one time or one-off events and interactions that are a part of a broader customer relationship. In the case of a one off one time transaction then quality of service is often less important than the cost to provide the service. These types of interactions can usually be off-shored within acceptable cost and quality parameters. Where the interaction is a part of an on-going relationship we must consider the value of the relationship, the lifetime value of a customer and the quality of the service that can be delivered. The costs of executing service may well be lower off-shore, but the quality is impacted by customer perceptions, actual quality of linguistic or communications skills and the context of knowledge that the provider may or may not possess. Thus the service quality may actually erode customer value, drive churn and increase customer dissatisfaction.
Second, before any company looks at outsourcing or off-shoring they need first to ensure that they have taken all possible measures internally to improve the service quality that is delivered to customers. Outsourcers of all kinds but significantly domestic outsourcers employ labor arbitrage and economies of scale to deliver an operational cost lower than that possible internally. In reality outsourcers take the existing processes and procedures and deliver the service employing these operational parameters with lower paid staff and across a larger more technologically sophisticated and more efficient operation. Outsourcing and expecting the outsource provider to reengineer your processes and procedures is unrealistic. So if your processes are dysfunctional or your procedures are counterproductive the outsourcer will deliver the service with the same dysfunctional and/or counterproductive activities at a lower cost. There will be no operational breakthroughs through outsourcing. The company must ensure that they have optimized their service provision before outsourcing, because it won’t happen after.
So as you assess your company’s suitability you must determine:
Are your service transactions a one-off or are they part of a broader on-going customer relationship?
What are the risks to the customer relationship associated with off-shoring?
· From the companies perspective?
· From the customers perspective?
Can these risks be mitigated?
Are we willing to accept these risks and the worst case scenario to save approximately 12%?
Have we optimized our existing internal operational model?
· Is our technology the best possible to support the delivery of service?
· Do we have the right people with the right skills delivering service today?
· Do we have the appropriate training and development in place to grow and develop our staff to deliver ever improving service?
· Are our operational metrics aligned with the goals and objectives of the company?
Do we have the resources and appropriate knowledge internally to source, implement and manage an outsource provider?
Do we possess a network and IT infrastructure that can support extension to an outsource provider?
Outsourcing can be an effective and efficient means of delivering service. Outsource agencies can deliver superior service than a company may be able to deliver internally. While this seems counter intuitive often companies cannot secure sufficient resources to provide appropriate technology, sufficient staff or may simply lack the knowledge or resource bandwidth to create and deliver effective hiring, training and service delivery.
Outsourcing any service carries risk and we must take the time ask the important questions before we jump. Failure to take the appropriate steps and assessments can result in higher costs and a loss of customer loyalty. Unfortunately many companies fail to complete appropriate due diligence before they jump: a survey conducted by Orbys found that almost 50% of blue chip companies entered the sourcing process to select an outsourcer without “knowing exactly what they want or how best to source it”. Perhaps not surprisingly one third of the companies ultimately found that heir outsourcing arrangements failed to meet their needs and almost 25% ultimately brought the services back in house.
In our next article we will discuss the steps and activities a company should take once they have made the decision to outsource service delivery to ensure that they have the best opportunity for success.
First a couple of definitions:
Outsourcing is the use of an independent company to provide services that previously were delivered by a companies own staff.
Off-Shoring is the use of resources that are located in a country remote to the company.
Both of these concepts can be executed independently or in combination. There are domestic outsource service providers, there are off-shore outsource service providers and there are captive (company operated) off-shore service providers. Another term that comes up in discussions of outsourcing and off-shoring is ‘near-shoring’ the provision of services in another country, but one that is close both geographically as well as culturally.
The news has been full of outsourcing stories gone bad…British Rail outsourcing their call center to India and then telling customers that they cannot book a ‘slipper car’, when the customer wanted a ‘sleeper car’. Dell has publicly announced moving support services to India and then publicly returning it to the US. An automaker outsourced technical support for their mechanics to India only to have the mechanics boycott the center and ultimately bring it back to the US. In the latter two cases the costs to move the business off-shore and then to bring it back cost significantly more than leaving it alone in the first place. What were the company executives thinking when they made their original decisions, did they ask themselves and their organizations the right questions?
The media message related to outsourcing is that companies can save 40, 50 even 60% of their processing costs simply by moving the services to an off-shore location like India or the Philippines. The truth is quite different while the costs of labor in off-shore locations are significantly less than the costs to operate domestically (often less than half), there are other costs which can be significant. These additional costs include: Management costs; to support a service operation half way around the world requires a team of staff to support this initiative, Systems and networks need to be expanded and secured, Travel costs to deliver trainings and to attend meetings is not insignificant in terms of both costs and senior management time. So what is the bottom line? According to Gartner the average savings a company actually achieves is only 12%. Savings greater than 12% can often be achieved domestically by streamlining or reengineering the current operational model. In call and contact centers we often se organizations that save 20% to 30% by improving the existing center.
So what should a company consider when considering outsourcing and/or off-shoring? First, we must understand what the nature of the services that are being provided. Specifically we must look at whether the service provides direct interaction with customers. Back office processes where no customer interaction are the easiest services to move to an outsource and/or off-shore provider. This assessment focuses almost exclusively on the price and quality of the work that will be completed. But where the service involves direct interaction with customer such as a call center the assessment becomes far more complicated. For simplicity’s sake we can classify customer interactions into two categories: those that are one time or one-off events and interactions that are a part of a broader customer relationship. In the case of a one off one time transaction then quality of service is often less important than the cost to provide the service. These types of interactions can usually be off-shored within acceptable cost and quality parameters. Where the interaction is a part of an on-going relationship we must consider the value of the relationship, the lifetime value of a customer and the quality of the service that can be delivered. The costs of executing service may well be lower off-shore, but the quality is impacted by customer perceptions, actual quality of linguistic or communications skills and the context of knowledge that the provider may or may not possess. Thus the service quality may actually erode customer value, drive churn and increase customer dissatisfaction.
Second, before any company looks at outsourcing or off-shoring they need first to ensure that they have taken all possible measures internally to improve the service quality that is delivered to customers. Outsourcers of all kinds but significantly domestic outsourcers employ labor arbitrage and economies of scale to deliver an operational cost lower than that possible internally. In reality outsourcers take the existing processes and procedures and deliver the service employing these operational parameters with lower paid staff and across a larger more technologically sophisticated and more efficient operation. Outsourcing and expecting the outsource provider to reengineer your processes and procedures is unrealistic. So if your processes are dysfunctional or your procedures are counterproductive the outsourcer will deliver the service with the same dysfunctional and/or counterproductive activities at a lower cost. There will be no operational breakthroughs through outsourcing. The company must ensure that they have optimized their service provision before outsourcing, because it won’t happen after.
So as you assess your company’s suitability you must determine:
Are your service transactions a one-off or are they part of a broader on-going customer relationship?
What are the risks to the customer relationship associated with off-shoring?
· From the companies perspective?
· From the customers perspective?
Can these risks be mitigated?
Are we willing to accept these risks and the worst case scenario to save approximately 12%?
Have we optimized our existing internal operational model?
· Is our technology the best possible to support the delivery of service?
· Do we have the right people with the right skills delivering service today?
· Do we have the appropriate training and development in place to grow and develop our staff to deliver ever improving service?
· Are our operational metrics aligned with the goals and objectives of the company?
Do we have the resources and appropriate knowledge internally to source, implement and manage an outsource provider?
Do we possess a network and IT infrastructure that can support extension to an outsource provider?
Outsourcing can be an effective and efficient means of delivering service. Outsource agencies can deliver superior service than a company may be able to deliver internally. While this seems counter intuitive often companies cannot secure sufficient resources to provide appropriate technology, sufficient staff or may simply lack the knowledge or resource bandwidth to create and deliver effective hiring, training and service delivery.
Outsourcing any service carries risk and we must take the time ask the important questions before we jump. Failure to take the appropriate steps and assessments can result in higher costs and a loss of customer loyalty. Unfortunately many companies fail to complete appropriate due diligence before they jump: a survey conducted by Orbys found that almost 50% of blue chip companies entered the sourcing process to select an outsourcer without “knowing exactly what they want or how best to source it”. Perhaps not surprisingly one third of the companies ultimately found that heir outsourcing arrangements failed to meet their needs and almost 25% ultimately brought the services back in house.
In our next article we will discuss the steps and activities a company should take once they have made the decision to outsource service delivery to ensure that they have the best opportunity for success.
2/10/2007
China 's Beyondsoft to enter Indian IT market
One of China's leading IT services companies, Beyondsoft Co. Ltd. is planning to enter India's booming IT/BPO segment by the end of the first quarter of fiscal 2007-08.
'We are planning to enter India in a very big way in the BPO and ITO - sectors,' Jonathan C.Chu, vice president, Beyondsoft, told IANS on the margins of the India Leadership Forum organized by NASSCOM - here.
Refusing to give any financial details Chu said: 'We are palnning invest several million dollars here.'
The company works for global software giants such as Microsoft, IBM, HP, SAP and Oracle in software development, testing and localization, and it has grown from a small firm of 100 people in 2001 to one of China's major software outsourcing providers.
The $45 million group now employs 800 developers and boasts of headcount of over 1600.
'We will open our first unit by the first quarter of the coming fiscal. We plan to hire over 100 people in our first year of operation and our revenue target for the first year would be over $1 million - $2 million,' Chu added.
'India is a very strategic market for us and we hope to grow here. The IT market here is more sophisticated and mature whereas Chinese companies are gradually coming up.'
'We are planning to enter India in a very big way in the BPO and ITO - sectors,' Jonathan C.Chu, vice president, Beyondsoft, told IANS on the margins of the India Leadership Forum organized by NASSCOM - here.
Refusing to give any financial details Chu said: 'We are palnning invest several million dollars here.'
The company works for global software giants such as Microsoft, IBM, HP, SAP and Oracle in software development, testing and localization, and it has grown from a small firm of 100 people in 2001 to one of China's major software outsourcing providers.
The $45 million group now employs 800 developers and boasts of headcount of over 1600.
'We will open our first unit by the first quarter of the coming fiscal. We plan to hire over 100 people in our first year of operation and our revenue target for the first year would be over $1 million - $2 million,' Chu added.
'India is a very strategic market for us and we hope to grow here. The IT market here is more sophisticated and mature whereas Chinese companies are gradually coming up.'
China fast catching up with India in outsourcing
China is fast catching up with India by offering cost-effective outsourcing services with the latest success being US telecom giant Avaya setting up a large facility in the country, a research firm said.
According to a recent report from callcenters.Net, an Asian research firm, China's call centre industry is set to grow 22 per cent this year.
The size of the industry's labour force, including bank hotline services and it companies' technical support staff, will hit 158,000 this year, up from 130,000 last year, registering a 22 per cent increase.
In India, the work force is seen rising 16 per cent to 312,500, Sydney-based research firm callcentres.Net said.
Although the size of China's Call Centre industry is just half that of India's, experts said china's high productivity and cost-effective human resources will attract more multinationals to set up centres in the country.
Avaya has set up an "intelligent communications centre" in Dalian city in North-East China, as part of the company's commitment to the local government in June last year to help turn the booming city into a call centre hub for China and other northeast Asian markets, the state media reported today.
The centre, located in the Dalian software park, will also be Avaya's software and service headquarters for the Asia-Pacific region, senior vice-president of Avaya Global Services Francis Scricco said.
According to a report by US Consultancy Frost & Sullivan, Avaya tops China's call centre products and services market with a share of about 20 per cent.
However, things are changing rapidly. For example, multinationals including Dell Inc, Motorola and HP have shifted their call centres to China to take advantage of its cheap labour, 'China Daily' reported.
Domestic firms such as China mobile and Bank of China have also begun to establish their own call centres with advanced communication systems.
China is keen to enter the outsourcing business and has sent a number of delegations to India to study the working of Indian call centres.
However, poor English language skills seem to be a major problem for the Chinese to compete with Indians.
China, known as the world's factory, is also keen for an image makeover. Chinese leaders have emphasised that the country should encourage service sector as a new area for high growth along with hi-tech manufacturing while cutting down on low-end manufacturing.
According to a recent report from callcenters.Net, an Asian research firm, China's call centre industry is set to grow 22 per cent this year.
The size of the industry's labour force, including bank hotline services and it companies' technical support staff, will hit 158,000 this year, up from 130,000 last year, registering a 22 per cent increase.
In India, the work force is seen rising 16 per cent to 312,500, Sydney-based research firm callcentres.Net said.
Although the size of China's Call Centre industry is just half that of India's, experts said china's high productivity and cost-effective human resources will attract more multinationals to set up centres in the country.
Avaya has set up an "intelligent communications centre" in Dalian city in North-East China, as part of the company's commitment to the local government in June last year to help turn the booming city into a call centre hub for China and other northeast Asian markets, the state media reported today.
The centre, located in the Dalian software park, will also be Avaya's software and service headquarters for the Asia-Pacific region, senior vice-president of Avaya Global Services Francis Scricco said.
According to a report by US Consultancy Frost & Sullivan, Avaya tops China's call centre products and services market with a share of about 20 per cent.
However, things are changing rapidly. For example, multinationals including Dell Inc, Motorola and HP have shifted their call centres to China to take advantage of its cheap labour, 'China Daily' reported.
Domestic firms such as China mobile and Bank of China have also begun to establish their own call centres with advanced communication systems.
China is keen to enter the outsourcing business and has sent a number of delegations to India to study the working of Indian call centres.
However, poor English language skills seem to be a major problem for the Chinese to compete with Indians.
China, known as the world's factory, is also keen for an image makeover. Chinese leaders have emphasised that the country should encourage service sector as a new area for high growth along with hi-tech manufacturing while cutting down on low-end manufacturing.
2/08/2007
Satyam Launches China Development Center
Satyam Computer Services Ltd., India's fourth-largest software company, on Thursday began construction of a major development center, its largest outside India and first in China.
The groundbreaking for the center in the eastern city of Nanjing follows Satyam's announcement of plans for a software development center in Malaysia. Both are part of the company's effort to evolve into a global company, according to Virender Aggarwal, the company's senior vice president and regional director.
Hyderabad-based Satyam's expansion is aimed partly at offsetting rising costs in
India and at developing a base of skilled workers, Aggarwal said in a phone interview.
Like other Indian outsourcing companies, Satyam is trying to win clients outside the United States and Europe, looking to China, Australia and Latin America to diversify risks and build markets.
"China is one of the largest economies in the world and is likely to be the No. 2 economy in 20 years or so. It is very important that we are here," he said.
Satyam has 500 employees in China, almost all of them Chinese, at support centers in Shanghai, Beijing, the southern city of Guangzhou and the northeastern city of Dalian.
The abundance of jobs in India means workers job-hop often. China offers the advantages of a huge labor pool, a plus in Satyam's fight to recruit and retain labor, Aggarwal said.
"The labor market in Nanjing is relatively untapped," he said.
The center will be located in a high-tech zone that is expected to attract more than 300 software companies, Qi Lu, the Communist Party secretary in charge of the zone said in a statement.
Asia-Pacific, Africa and the Middle East contribute around 16 percent of Satyam's global revenue, while Europe contributes about 18 percent and the United States about 65 percent, he said.
Other Indian software companies are expanding in China, too. Infosys Technologies Ltd., India's second-largest software company, plans to open two development centers in China that will employ 6,000 people.
India's top information technology company, Tata Consultancy Services Ltd., has a joint venture agreement with three Chinese partners, with strategic investment from Microsoft Corp., to expand its operations in China.
The groundbreaking for the center in the eastern city of Nanjing follows Satyam's announcement of plans for a software development center in Malaysia. Both are part of the company's effort to evolve into a global company, according to Virender Aggarwal, the company's senior vice president and regional director.
Hyderabad-based Satyam's expansion is aimed partly at offsetting rising costs in
India and at developing a base of skilled workers, Aggarwal said in a phone interview.
Like other Indian outsourcing companies, Satyam is trying to win clients outside the United States and Europe, looking to China, Australia and Latin America to diversify risks and build markets.
"China is one of the largest economies in the world and is likely to be the No. 2 economy in 20 years or so. It is very important that we are here," he said.
Satyam has 500 employees in China, almost all of them Chinese, at support centers in Shanghai, Beijing, the southern city of Guangzhou and the northeastern city of Dalian.
The abundance of jobs in India means workers job-hop often. China offers the advantages of a huge labor pool, a plus in Satyam's fight to recruit and retain labor, Aggarwal said.
"The labor market in Nanjing is relatively untapped," he said.
The center will be located in a high-tech zone that is expected to attract more than 300 software companies, Qi Lu, the Communist Party secretary in charge of the zone said in a statement.
Asia-Pacific, Africa and the Middle East contribute around 16 percent of Satyam's global revenue, while Europe contributes about 18 percent and the United States about 65 percent, he said.
Other Indian software companies are expanding in China, too. Infosys Technologies Ltd., India's second-largest software company, plans to open two development centers in China that will employ 6,000 people.
India's top information technology company, Tata Consultancy Services Ltd., has a joint venture agreement with three Chinese partners, with strategic investment from Microsoft Corp., to expand its operations in China.
Are US engineers up to the global challenge?
Competition is fierce, the need to innovate and be productive never greater. Alan Earls asks, are US engineers up to the challenge?
Despite its eroding leadership position in many key industries over the past quarter century, the US still possesses an enviable collection of innovative and profitable “thoroughbreds”—industry-leading companies like Intel and HP.
But the strategic and long-term picture is more muddled. Does the US have enough engineers—and enough of the right kind—to sustain its leading enterprises and grow the next generation of success stories? Thanks to a lack of interest among young people, fewer talented individuals are going into engineering. What’s more, an increasing number of US-based companies seem happy to play the labor arbitrage game, either outsourcing manufacturing tasks or simply setting up shop in places like India or China, where eager young engineers are happy to tackle any challenge at a cost far below that in the US. This brain drain of skills and intellectual capital has some worried that the US may devolve into a nation only able to consume and unable to add value to raw materials. That would leave the US strategically dependent on others for almost all of its manufactured goods.
Ron Hira, assistant professor of public policy at Rochester Institute of Technology (RIT) and an expert in offshore outsourcing and industrial policy, is one of those who are concerned. “I think engineers contribute in a large degree to US productivity and competitiveness—for one thing, about 65 percent of American R&D is done in the manufacturing sector,” he says. Yet Hira observes a pervasive attitude that if US companies can buy something cheaper in China or India, that’s good because it helps the bottom line. “It is much better to design and manufacture things here because of the local spillover benefits” such as job creation and entrepreneurship by engineers themselves.
Those offshore engineers may be plentiful, but are they better? “The discussion on engineering resources has focused far too much on quantity rather than quality,” says Hira. For example, he notes that major business groups like the Business Roundtable have recommended that the US double its number of engineering graduates. However, this would require huge government resources, since engineering education is heavily subsidized. Instead, Hira suggests we think more about how we differentiate our students from what can be taught in India or China. “If my cousins in India can do the same work for one-fifth of the salary, then companies will begin hiring them instead of me,” says Hira. “We need to figure out what’s going to stay and what’s going to go, and what skills are needed for those jobs.”
Does our existing pool of engineers have the skills for today’s jobs? “If technological change is moving faster, as most people claim, then the obsolescence cycles are probably getting shorter,” says Hira. Quoting William A. Wulf, president of the National Academy of Engineering (NAE), Hira notes that the half-life of an engineer has gotten shorter. This means that continuing education is more critical for engineers than ever before. But the support mechanism of company subsidies has been largely dismantled because employees stay in jobs for shorter durations and companies no longer see benefit in paying tuition. It also means that companies, when they can, likely favor recent graduates over mid-career or older ones.
Wulf points to the conclusions of a recent NAE report, “Rising Above the Gathering Storm.” The report argues that although the US engineering is very competitive now, there are disturbing signs that our competitiveness is in peril. “We need to do a set of things now to ensure future security and prosperity,” says Wulf; in particular, he says, we need to support the traditional US advantage—innovation—through better education at all levels and more support of research.
“Engineers are the principal source of innovation and have done very well for us,” says Wulf. If the US is to continue to prosper, Wulf suggests that it must prepare engineers for the 21st century, not the 20th. “I am concerned that our Achilles’ heel is that engineering education has changed very little since I was an undergraduate more than 45 years ago,” he adds. Meanwhile, the quality of engineering education abroad is increasing dramatically, shrinking a traditional US lead.
The quality of engineering education and of engineers is also very much on the mind of Bernard M. Gordon, a pioneer in high-tech electronics since the 1950s and a philanthropist who has supported a number of engineering initiatives at MIT, Tufts University, and Northeastern University. Gordon says the problem goes beyond low enrollment, though he acknowledges that issue is important.
Instead, Gordon believes that American engineers are no longer trained to be effective or managed correctly to produce results. They have learned science but forgotten engineering. As a consequence, he suspects the productivity of individual engineers, in terms of the dollar value of products attributable to their efforts, has slipped. He blames a combination of poor attitude among engineers and an emphasis in colleges on scientific training over practical problem-solving skills. Additionally, he says, engineers in the workplace are not monitored and mentored to help them hone and mature their skills.
Although Gordon says he has been raising the alarm on the topic for decades, today there seem to be others sharing his concern. For instance, Dave Gardner, principal of Gardner & Associates Consulting (Reno, NV), says engineers in the US don’t seem to understand the huge difference between research and development (where the focus is really on research) and actual product development. “The vast majority of engineers are involved in product development but seem to behave as though they are in R&D—in other words, they don’t take responsibility for many of the downstream issues that they create,” he says.
“Sadly, too many engineers don’t like to ‘get their hands dirty’ with the day-to-day issues that allow a product to be easily produced. This is particularly true in situation where parts, subassemblies and turnkey products are being outsourced more and more.”
Exacerbating the problem, Gardner says most engineers prefer to talk only to other engineers and, therefore, don’t like to engage directly in the challenges that suppliers and their manufacturing counterparts have producing parts and subassemblies. “It is almost as though these ‘mundane’ issues are beneath them,” he says.
Fixing engineering may not be easy, but it can be done, says Wulf, who points to a recent NAE report that proposes extensive reforms to engineering education (see sidebar). However, he cautions, it’s not about being nationalistic. “I am not one of those who believe we have to do ‘better’ than, say, India or China—on the contrary, I believe we are safer if those countries, and the rest of the developing world, prosper as part of a global economy.” On the other hand, “I don’t want us to fall behind them either, and right now I see them as hungrier than we seem to be.”
Furthermore, Wulf sees a nation that needs more leadership from engineers. “In China, about half of the cabinet ministers were trained as engineers. There are lots of reasons for their incredible economic growth, but I am convinced that a major one is the way those engineers think about their country’s problems and opportunities.”
Despite its eroding leadership position in many key industries over the past quarter century, the US still possesses an enviable collection of innovative and profitable “thoroughbreds”—industry-leading companies like Intel and HP.
But the strategic and long-term picture is more muddled. Does the US have enough engineers—and enough of the right kind—to sustain its leading enterprises and grow the next generation of success stories? Thanks to a lack of interest among young people, fewer talented individuals are going into engineering. What’s more, an increasing number of US-based companies seem happy to play the labor arbitrage game, either outsourcing manufacturing tasks or simply setting up shop in places like India or China, where eager young engineers are happy to tackle any challenge at a cost far below that in the US. This brain drain of skills and intellectual capital has some worried that the US may devolve into a nation only able to consume and unable to add value to raw materials. That would leave the US strategically dependent on others for almost all of its manufactured goods.
Ron Hira, assistant professor of public policy at Rochester Institute of Technology (RIT) and an expert in offshore outsourcing and industrial policy, is one of those who are concerned. “I think engineers contribute in a large degree to US productivity and competitiveness—for one thing, about 65 percent of American R&D is done in the manufacturing sector,” he says. Yet Hira observes a pervasive attitude that if US companies can buy something cheaper in China or India, that’s good because it helps the bottom line. “It is much better to design and manufacture things here because of the local spillover benefits” such as job creation and entrepreneurship by engineers themselves.
Those offshore engineers may be plentiful, but are they better? “The discussion on engineering resources has focused far too much on quantity rather than quality,” says Hira. For example, he notes that major business groups like the Business Roundtable have recommended that the US double its number of engineering graduates. However, this would require huge government resources, since engineering education is heavily subsidized. Instead, Hira suggests we think more about how we differentiate our students from what can be taught in India or China. “If my cousins in India can do the same work for one-fifth of the salary, then companies will begin hiring them instead of me,” says Hira. “We need to figure out what’s going to stay and what’s going to go, and what skills are needed for those jobs.”
Does our existing pool of engineers have the skills for today’s jobs? “If technological change is moving faster, as most people claim, then the obsolescence cycles are probably getting shorter,” says Hira. Quoting William A. Wulf, president of the National Academy of Engineering (NAE), Hira notes that the half-life of an engineer has gotten shorter. This means that continuing education is more critical for engineers than ever before. But the support mechanism of company subsidies has been largely dismantled because employees stay in jobs for shorter durations and companies no longer see benefit in paying tuition. It also means that companies, when they can, likely favor recent graduates over mid-career or older ones.
Wulf points to the conclusions of a recent NAE report, “Rising Above the Gathering Storm.” The report argues that although the US engineering is very competitive now, there are disturbing signs that our competitiveness is in peril. “We need to do a set of things now to ensure future security and prosperity,” says Wulf; in particular, he says, we need to support the traditional US advantage—innovation—through better education at all levels and more support of research.
“Engineers are the principal source of innovation and have done very well for us,” says Wulf. If the US is to continue to prosper, Wulf suggests that it must prepare engineers for the 21st century, not the 20th. “I am concerned that our Achilles’ heel is that engineering education has changed very little since I was an undergraduate more than 45 years ago,” he adds. Meanwhile, the quality of engineering education abroad is increasing dramatically, shrinking a traditional US lead.
The quality of engineering education and of engineers is also very much on the mind of Bernard M. Gordon, a pioneer in high-tech electronics since the 1950s and a philanthropist who has supported a number of engineering initiatives at MIT, Tufts University, and Northeastern University. Gordon says the problem goes beyond low enrollment, though he acknowledges that issue is important.
Instead, Gordon believes that American engineers are no longer trained to be effective or managed correctly to produce results. They have learned science but forgotten engineering. As a consequence, he suspects the productivity of individual engineers, in terms of the dollar value of products attributable to their efforts, has slipped. He blames a combination of poor attitude among engineers and an emphasis in colleges on scientific training over practical problem-solving skills. Additionally, he says, engineers in the workplace are not monitored and mentored to help them hone and mature their skills.
Although Gordon says he has been raising the alarm on the topic for decades, today there seem to be others sharing his concern. For instance, Dave Gardner, principal of Gardner & Associates Consulting (Reno, NV), says engineers in the US don’t seem to understand the huge difference between research and development (where the focus is really on research) and actual product development. “The vast majority of engineers are involved in product development but seem to behave as though they are in R&D—in other words, they don’t take responsibility for many of the downstream issues that they create,” he says.
“Sadly, too many engineers don’t like to ‘get their hands dirty’ with the day-to-day issues that allow a product to be easily produced. This is particularly true in situation where parts, subassemblies and turnkey products are being outsourced more and more.”
Exacerbating the problem, Gardner says most engineers prefer to talk only to other engineers and, therefore, don’t like to engage directly in the challenges that suppliers and their manufacturing counterparts have producing parts and subassemblies. “It is almost as though these ‘mundane’ issues are beneath them,” he says.
Fixing engineering may not be easy, but it can be done, says Wulf, who points to a recent NAE report that proposes extensive reforms to engineering education (see sidebar). However, he cautions, it’s not about being nationalistic. “I am not one of those who believe we have to do ‘better’ than, say, India or China—on the contrary, I believe we are safer if those countries, and the rest of the developing world, prosper as part of a global economy.” On the other hand, “I don’t want us to fall behind them either, and right now I see them as hungrier than we seem to be.”
Furthermore, Wulf sees a nation that needs more leadership from engineers. “In China, about half of the cabinet ministers were trained as engineers. There are lots of reasons for their incredible economic growth, but I am convinced that a major one is the way those engineers think about their country’s problems and opportunities.”
2/06/2007
Neusoft Listed in the 2007 Global Services 100
The Global Services 100 List, a
compilation of the world's most innovative service providers selected on
the basis of a research study, has been jointly released by Global Services
and neoIT, an outsourcing advisory firm. Neusoft, a leading software and
solution provider in China, was listed amongst the ''Global Services 100''
for the third time, and was also ranked No.1 in the ''Top 10 to Watch in
Emerging Asian Markets.'' Last year Neusoft was listed the leader of the
''Top 5 to Watch in China.'' Neusoft's Vice-president & CTO Walter Fang
attended the 2007 Global Services Conference held on Jan. 31 in New York,
and delivered a speech on behalf of Neusoft.
It is reported that Neusoft has 15 years of experience in software and
service outsourcing and has been ranked No. 1 in offshore outsourcing
revenue among all software outsourcers in China for three consecutive
years.
In 2006, the company continued its input in software and service
outsourcing by proactively taking in more high-quality talents. By the year
end, the number of employees that are engaged in offshore software and
service outsourcing at Neusoft has reached 4,000, functioning as a
high-quality R&D team capable of coping with the continuously increasing
demands of clients all over the world. Also in this year, Neusoft's
software outsourcing and BPO business was certified by ISO27001, becoming
the first software company to have passed the certification both in
software outsourcing and BPO business in China. The year also witnessed a
major breakthrough in market expansion, especially in Europe and America,
contributing to a more than 50% growth in software outsourcing over the
previous year. Further more, the company has accelerated its pace in
outsourcing service base construction by establishing international bases
in Dalian, Shanghai, Nanjing, and Chengdu respectively, which may help
develop more software and service outsourcing businesses.
Neusoft's Vice-president & CTO Walter Fang said, ''Chinese software
companies are growing more and more mature, attracting more trust from
European and American clients. They will definitely become a major force in
global software & service cooperation. Neusoft has obtained recognition
from the global community for its outstanding performance and high-speed
growth, which will create a solid foundation for its further participation
into the global competition.''
compilation of the world's most innovative service providers selected on
the basis of a research study, has been jointly released by Global Services
and neoIT, an outsourcing advisory firm. Neusoft, a leading software and
solution provider in China, was listed amongst the ''Global Services 100''
for the third time, and was also ranked No.1 in the ''Top 10 to Watch in
Emerging Asian Markets.'' Last year Neusoft was listed the leader of the
''Top 5 to Watch in China.'' Neusoft's Vice-president & CTO Walter Fang
attended the 2007 Global Services Conference held on Jan. 31 in New York,
and delivered a speech on behalf of Neusoft.
It is reported that Neusoft has 15 years of experience in software and
service outsourcing and has been ranked No. 1 in offshore outsourcing
revenue among all software outsourcers in China for three consecutive
years.
In 2006, the company continued its input in software and service
outsourcing by proactively taking in more high-quality talents. By the year
end, the number of employees that are engaged in offshore software and
service outsourcing at Neusoft has reached 4,000, functioning as a
high-quality R&D team capable of coping with the continuously increasing
demands of clients all over the world. Also in this year, Neusoft's
software outsourcing and BPO business was certified by ISO27001, becoming
the first software company to have passed the certification both in
software outsourcing and BPO business in China. The year also witnessed a
major breakthrough in market expansion, especially in Europe and America,
contributing to a more than 50% growth in software outsourcing over the
previous year. Further more, the company has accelerated its pace in
outsourcing service base construction by establishing international bases
in Dalian, Shanghai, Nanjing, and Chengdu respectively, which may help
develop more software and service outsourcing businesses.
Neusoft's Vice-president & CTO Walter Fang said, ''Chinese software
companies are growing more and more mature, attracting more trust from
European and American clients. They will definitely become a major force in
global software & service cooperation. Neusoft has obtained recognition
from the global community for its outstanding performance and high-speed
growth, which will create a solid foundation for its further participation
into the global competition.''
Outsourcing : changing more than just processes
Outsourcing is more than just about cost:
* Business growth as an outsourcing objective
* Skills access through outsourcing
* Global sourcing set to accelerate
* Boost in outsourcing in the financial services sector
IT services company Unisys predicts a single over-arching trend in outsourcing for 2007: that businesses will want their outsource service providers to deliver more than improvements to processes and costs.
Brett Hodgson, Managing Director at Unisys New Zealand, said, “Whatever the levels of maturity in outsourcing in different countries in our region, the theme from customers is consistent. Outsourcing is the means to change, and deliver more to, a business or a government. Today it’s so much more than the means to changing or improving or managing just the processes of a company.
“The ability of outsourcing to do this plays directly to the profitability of businesses, and to the speed with which they can react to market demand. The days of thinking of outsourcing as being just about cost are over. Effective identity management, effective data protection, and effective protection of intellectual property will all influence the choice of outsourcer, because the customer is also outsourcing its reputation.”
Unisys believes there are four factors influencing this trend.
Growth as an outsourcing objective
Businesses will increasingly turn to outsourcing to improve customer loyalty. This will come from improving customer service, responding more quickly to opportunities or challenges, IT innovation and improving the returns from the investment made in IT infrastructure. Outsourcing IT infrastructure, in one way or another, will let companies do all this more quickly and more flexibly, in a way that satisfies the CFO. In particular, business process outsourcing will increasingly be seen in these terms – and not just about saving costs.
Accessing skills through outsourcing – balancing supply & demand
Access to skills and specialised expertise will encourage outsourcing in countries or markets where skills are at a premium. Businesses will seek outsource service providers which have these skills, and which can make them available flexibly and affordably. In mature markets such as Australia and New Zealand, these will increasingly be accessed offshore. Short-term projects will grow within larger, traditional outsourcing contracts, requiring specialist skills. This will be particularly prevalent on infrastructure projects and on networking integration projects.
Global sourcing
Global sourcing will continue to grow – and gain acceptance, including from within the public sector. Inter-related will be the role of risk management expertise as an associated discipline. Customers (in financial services, for example) will increasingly chose only those service providers that can demonstrate robust data protection and audit regimes to protect identities and intellectual property.
Overall the outsourcing debate will become less about cost containment and more about accessing the best IT skills and expertise. Global sourcing will apply equally to IT outsourcing and business process outsourcing. New Zealand, Malaysia and the Philippines will continue to grow as offshore options to complement the more established locations of India and China. And on-shoring – the use of skilled resources from low-cost countries on local projects – will also become an option.
Increasing the share of wallet in the financial services sector
The financial services sector will see a continued increase in outsourcing, influenced by continuing profits and the demand for increased flexibility. Intelligent customer relationships will be a focus – with the banks focusing on the customer and the outsourcers focusing on hosting and managing the associated infrastructure. This will extend to outsourced applications development. Mergers and acquisitions will also see an increase in consolidated infrastructures. And the need to balance security and privacy of customer data will continue to be a central theme.
* Business growth as an outsourcing objective
* Skills access through outsourcing
* Global sourcing set to accelerate
* Boost in outsourcing in the financial services sector
IT services company Unisys predicts a single over-arching trend in outsourcing for 2007: that businesses will want their outsource service providers to deliver more than improvements to processes and costs.
Brett Hodgson, Managing Director at Unisys New Zealand, said, “Whatever the levels of maturity in outsourcing in different countries in our region, the theme from customers is consistent. Outsourcing is the means to change, and deliver more to, a business or a government. Today it’s so much more than the means to changing or improving or managing just the processes of a company.
“The ability of outsourcing to do this plays directly to the profitability of businesses, and to the speed with which they can react to market demand. The days of thinking of outsourcing as being just about cost are over. Effective identity management, effective data protection, and effective protection of intellectual property will all influence the choice of outsourcer, because the customer is also outsourcing its reputation.”
Unisys believes there are four factors influencing this trend.
Growth as an outsourcing objective
Businesses will increasingly turn to outsourcing to improve customer loyalty. This will come from improving customer service, responding more quickly to opportunities or challenges, IT innovation and improving the returns from the investment made in IT infrastructure. Outsourcing IT infrastructure, in one way or another, will let companies do all this more quickly and more flexibly, in a way that satisfies the CFO. In particular, business process outsourcing will increasingly be seen in these terms – and not just about saving costs.
Accessing skills through outsourcing – balancing supply & demand
Access to skills and specialised expertise will encourage outsourcing in countries or markets where skills are at a premium. Businesses will seek outsource service providers which have these skills, and which can make them available flexibly and affordably. In mature markets such as Australia and New Zealand, these will increasingly be accessed offshore. Short-term projects will grow within larger, traditional outsourcing contracts, requiring specialist skills. This will be particularly prevalent on infrastructure projects and on networking integration projects.
Global sourcing
Global sourcing will continue to grow – and gain acceptance, including from within the public sector. Inter-related will be the role of risk management expertise as an associated discipline. Customers (in financial services, for example) will increasingly chose only those service providers that can demonstrate robust data protection and audit regimes to protect identities and intellectual property.
Overall the outsourcing debate will become less about cost containment and more about accessing the best IT skills and expertise. Global sourcing will apply equally to IT outsourcing and business process outsourcing. New Zealand, Malaysia and the Philippines will continue to grow as offshore options to complement the more established locations of India and China. And on-shoring – the use of skilled resources from low-cost countries on local projects – will also become an option.
Increasing the share of wallet in the financial services sector
The financial services sector will see a continued increase in outsourcing, influenced by continuing profits and the demand for increased flexibility. Intelligent customer relationships will be a focus – with the banks focusing on the customer and the outsourcers focusing on hosting and managing the associated infrastructure. This will extend to outsourced applications development. Mergers and acquisitions will also see an increase in consolidated infrastructures. And the need to balance security and privacy of customer data will continue to be a central theme.
2/05/2007
TCS tops list of top 10 best performing IT Services providers
(PTI) Tata Consultancy Services (TCS) topped the list of top 10 best performing IT Service providers worldwide rated by Global Services, a specialized publication for IT businesses.
Indian companies dominated the list with Cognizant Technologies occupying second position followed by Infosys Technologies, HCL Technologies, Neoris and Patni Computer System.
The 7th spot was occupied by MindTree Consulting followed by Politec, Satyam Computers Service and Wipro Technologies.
The top ranking for both Leaders in Human Capital Development and Best Performing BPO providers went to Genpact, and Hinduja TMT was selected as the Best Performing Global Call Center Provider.
The honour for the best performing Managed Services Providers went to Affiliated Computer Services of the US.
While Polaris Software Labs with delivery centers in India led the list of the Top 10 Specialty Application Development Providers, the Top Engineering Services Provider slot went to Patni Computer Systems.
India accounts for the largest number of companies among the top 100 with 36 finding the coveted slots and is followed closely United States with 32 outfits. Together India and the United States corner 68 of the 100 slots.
Expert from Global Services, a CMP-CyberMedia publication and outsourcing experts at neoIT, a consulting firm that specializes in servicing globalization, identified top service providers on the basis of survey conducted by the publication.
CMP-CyberMedia LLC is a 50-50 Joint Venture between CMP Media in the U.S.A. and CyberMedia in India.
The evaluation is based upon 250 data points collected from service providers from 18 countries and third parties regarding effective operations, service offerings, client relationships, and human capital.
The winners are organized in three categories: Customer and Business Process Awards, Regional and Emerging Provider Awards, and Tech-Delivery Awards.
Commenting on what made these firms more special than others, Pradeep Gupta, Chairman and Managing Director, CyberMedia, said, "These firms demonstrated a pattern of market leadership, innovation and outstanding customer service."
Quoting an analyst from Aberdeen Group, Global Services predicts that the market for outsourced IT services will become more global in nature leading to a buyer's market. A broader competitive field will create downward pressure on prices as providers in other parts of the world, particularly Eastern Europe, are finding better seats in the arena.
The listing, the Global Services said, throws up an interesting challenge to India's software supremacy in the form of 8 firms from China, 4 firms each from Malaysia and Eastern Europe, 3 each from Brazil and Mexico, and 2 from Russia.
An off shoring software firm each from Ukraine, Philippines, Latin America, Czech Republic and Romania signals the arrival of an entirely new set of nations providing software and IT services.
It estimates that the US purchases of IT goods and services will grow five percent in 2007 to touch $1.55 trillion. Over a dozen of the 32 American firms listed in the Global Services 100 survey are servicing their global customers through their India facilities.
America is known to source nearly two-thirds of total IT and BPO exports from India. Indian firms are hoping to export IT and BPO services exceeding $31 billion in the 12 months ending March next.
The Top emerging Global Service Providers slot went to Globant of Argentina; the Top South of the Border slot went to Softtek of Mexico with delivery centers in Mexico, Brazil and Spain.
Neusoft Group of China with over 10,000 employees bagged the Top Emerging Asian Markets rank and the IBA Group of the Czech Republic, the largest IT service provider in Eastern Europe, topped the list of Top Emerging European Markets.
Interestingly, nearly two-fifths of the respondents to the Global Services 100 survey expressed concern about extended sales cycle, employee attrition and the ability to scale operations.
The survey also reveals that 50 per cent of the outsourcers look for firms that bundle IT and BPOs services.
The Indian firms in the top 100 included: 24/7 Customer, Caliber Point Business Solutions, Exl Service Holdings, Genpact, ICT Group, i-flex solutions, Infinite Computer Solutions, Intelenet Global Services, ITC Infotech, Knoah Solutions, marketRx, Mastek, Microland, MindTree Consulting, Mistral Software, Motif, NIIT SmartServe, OfficeTiger, Promantra Synergy Solutions, QuEST, Satyam Computer Services, Sonata Software, Symphony Services, TransWorks Information Services, Customer, Vee Technologies, WNS and Zensar Technologies.
Indian companies dominated the list with Cognizant Technologies occupying second position followed by Infosys Technologies, HCL Technologies, Neoris and Patni Computer System.
The 7th spot was occupied by MindTree Consulting followed by Politec, Satyam Computers Service and Wipro Technologies.
The top ranking for both Leaders in Human Capital Development and Best Performing BPO providers went to Genpact, and Hinduja TMT was selected as the Best Performing Global Call Center Provider.
The honour for the best performing Managed Services Providers went to Affiliated Computer Services of the US.
While Polaris Software Labs with delivery centers in India led the list of the Top 10 Specialty Application Development Providers, the Top Engineering Services Provider slot went to Patni Computer Systems.
India accounts for the largest number of companies among the top 100 with 36 finding the coveted slots and is followed closely United States with 32 outfits. Together India and the United States corner 68 of the 100 slots.
Expert from Global Services, a CMP-CyberMedia publication and outsourcing experts at neoIT, a consulting firm that specializes in servicing globalization, identified top service providers on the basis of survey conducted by the publication.
CMP-CyberMedia LLC is a 50-50 Joint Venture between CMP Media in the U.S.A. and CyberMedia in India.
The evaluation is based upon 250 data points collected from service providers from 18 countries and third parties regarding effective operations, service offerings, client relationships, and human capital.
The winners are organized in three categories: Customer and Business Process Awards, Regional and Emerging Provider Awards, and Tech-Delivery Awards.
Commenting on what made these firms more special than others, Pradeep Gupta, Chairman and Managing Director, CyberMedia, said, "These firms demonstrated a pattern of market leadership, innovation and outstanding customer service."
Quoting an analyst from Aberdeen Group, Global Services predicts that the market for outsourced IT services will become more global in nature leading to a buyer's market. A broader competitive field will create downward pressure on prices as providers in other parts of the world, particularly Eastern Europe, are finding better seats in the arena.
The listing, the Global Services said, throws up an interesting challenge to India's software supremacy in the form of 8 firms from China, 4 firms each from Malaysia and Eastern Europe, 3 each from Brazil and Mexico, and 2 from Russia.
An off shoring software firm each from Ukraine, Philippines, Latin America, Czech Republic and Romania signals the arrival of an entirely new set of nations providing software and IT services.
It estimates that the US purchases of IT goods and services will grow five percent in 2007 to touch $1.55 trillion. Over a dozen of the 32 American firms listed in the Global Services 100 survey are servicing their global customers through their India facilities.
America is known to source nearly two-thirds of total IT and BPO exports from India. Indian firms are hoping to export IT and BPO services exceeding $31 billion in the 12 months ending March next.
The Top emerging Global Service Providers slot went to Globant of Argentina; the Top South of the Border slot went to Softtek of Mexico with delivery centers in Mexico, Brazil and Spain.
Neusoft Group of China with over 10,000 employees bagged the Top Emerging Asian Markets rank and the IBA Group of the Czech Republic, the largest IT service provider in Eastern Europe, topped the list of Top Emerging European Markets.
Interestingly, nearly two-fifths of the respondents to the Global Services 100 survey expressed concern about extended sales cycle, employee attrition and the ability to scale operations.
The survey also reveals that 50 per cent of the outsourcers look for firms that bundle IT and BPOs services.
The Indian firms in the top 100 included: 24/7 Customer, Caliber Point Business Solutions, Exl Service Holdings, Genpact, ICT Group, i-flex solutions, Infinite Computer Solutions, Intelenet Global Services, ITC Infotech, Knoah Solutions, marketRx, Mastek, Microland, MindTree Consulting, Mistral Software, Motif, NIIT SmartServe, OfficeTiger, Promantra Synergy Solutions, QuEST, Satyam Computer Services, Sonata Software, Symphony Services, TransWorks Information Services, Customer, Vee Technologies, WNS and Zensar Technologies.
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