By PHK
John Dexter’s letter “Working for the Government, or Acting as It?” to the WaPo editors in reaction to a December 26 page A-19 article by Glenn Kessler struck a raw nerve. So I dug up Kessler’s “Old Iraq Strategy Lives On In Weekly Progress Reports.” In it, Kessler mentioned, but peculiarly did not question - as retired U.S. Foreign Service Officer Dexter pointed out - the outsourcing of the process of administering American foreign policy in Iraq to BearingPoint, Inc. by the State Department for a mere $2 million.
Kessler’s article, in fact, alludes - almost under the radar - to what may turn out to be the tip of yet another contractor cronyism iceberg – or perhaps more accurately given the terrain and changes in Congress, minefield. But this is more than just your ordinary Teapot Dome scandal – it’s a scandal that goes to the essence of government itself.
Reams have been written – and we’re told that the new Democratic Congress is preparing to hold hearings - on the waste, fraud, abuse, corruption, mismanagement and lack of oversight surrounding huge Pentagon-related Iraq and Afghanistan war contracts to such now household company names as Halliburton, SAIC and Lockheed-Martin. There are also indications that the House’s Government Reform Committee under new committee chair Henry Waxman (D-Calif) and Homeland Security Committee under Bennie Thompson (D-Miss) will also closely examine contractor abuse and political corruption in their respective spheres.
Waxman has proposed the establishment of five subcommittees, the first to focus on national security and international relations.
But what about the House Foreign Affairs or Senate Foreign Relations Committees?
Will they too focus on problems surrounding State Department and USAID contractors where substantial sums have also changed from public to private hands in the vain hope of turning Iraq and Afghanistan into models of western democratic nations in the heart of the Middle East? Or will these committees stand aside and let Waxman bear the brunt of the investigatory process? I certainly hope not. Beyond the financial waste and abuse that may well be lurking here lies the broader issue of outsourcing the integrity and accountability of our foreign policy.
It doesn’t take much googling to put at least a few of the pieces together with respect to the incredible magnitude of the privatization of American foreign policy during the W administration – and not just what has occurred under the auspices of the DOD.
As others have suggested, this vicious turning riches-into-more-riches cycle for giant corporations includes corporate PAC and other campaign contributions to W’s election and reelection campaigns as well as those to selected members of Congress.
Yet, at least some of the big-ticket projects which the Republicans in Congress and the White House have blithely tossed to their pals in the private sector over the past six years would have been handled by career federal employees in times past, at, I would venture to suggest, far less expense, far more loyalty to the common good and with greater expertise.
BearingPoint represents another of the many private centipede contractors tied by enormous strings to thousands of subcontractors which eat away at the traditional functions of the U.S. government. Given the nature and enormity of this single corporation’s operation – I’ve read that it has contracts from all 14 US government departments - I’ve undoubtedly only stumbled onto bits and pieces of its whole.
What is BearingPoint?
From 1997 - October 2002, BearingPoint was the consulting arm of the more than a century old auditing firm KPMG. In the wake of the Enron-Arthur Andersen debacle, KPMG’s less-than-five-year-old consulting arm was quickly spun off under its new name.
BearingPoint aka KPMG consulting, however, had already entered the lucrative foreign aid contracting business during the 1990s in the former Yugoslavia at a time when USAID had begun outsourcing ever more of the tasks assigned it, in part at least, because this was the only way the Agency could respond to increasing US governmental demands for its services despite its shrinking staff. But it wasn’t until after 2000 that enormous civilian foreign affairs contracts started to flow in BearingPoint’s direction.
By that time, career USAID, State and USIA staffs had been dramatically reduced, thanks in good part to an isolationist Republican Congress that thought the world was flat and ended at the ocean’s edge and a Democratic White House that wanted to demonstrate that it could dramatically reduce the size of the US government in line with the “peace-dividend” at the “end of history” after the end of the Cold War.
Yet even during the 1990s, overall coordination for US government spending on civilian democracy-building-type projects for the Soviet Union and the former Yugoslavia took place within specially created offices for each in the State Department. I remember having to comply with their decisions, whether I agreed or not. These offices were staffed largely by career foreign service and civil servants even though much of the money was contracted out and the heads of the offices had strong political connections.
Thus outsourcing had already become the name of the civilian foreign affairs projects and programs game well before W rode into town. But at least it was career government employees - tending to see things in terms of the common public good that policed the private contractors – not private contractors “policing themselves” with all eyes focused principally on their company’s balance sheet.
As it turns out, BearingPoint’s current $2 million contract with the State Department to administer the government’s Iraq policy process is, in fact, small potatoes compared to the billions of dollars in contracts BearingPoint, Inc. has thus far received from USAID for projects just in connection with the economies of Iraq and Afghanistan.
BearingPoint, unsurprisingly therefore, turns up on the Center for Corporate Policy's list of one of ten major corporations in 2004 to profit the most from the Iraq war as well as one of the top 100 federal contractors overall. What distinguishes BearingPoint from companies that have profited even more - for instance Halliburton and Lockheed Martin - is that BearingPoint’s largest contracts come from USAID, not the military.
BearingPoint has also profited from DOD contracts and even more mightily from Department of Homeland Security contracts (for things like improving airport security) but the biggest single grant I located was for a second round USAID economic contract for Iraq awarded to BearingPoint in 2005.
BearingPoint’s initial USAID contract for the project which had been increased from $79, 583,885 to $103,500,000 by the time it had ended was then topped by that new contract for $184,637,237 in 2005. All together, BearingPoint received from USAID, between 2003-2005, contracts worth $288,137,237 solely for its work in Iraq – a remarkable accomplishment in less than three years.
What’s wrong with this picture?
Not only has BearingPoint profited mightily from huge USAID projects, it turns out that it wrote the specifications for USAID’s contract for the original Iraq economic project. In contrast, the other nine contractors who also bid on the proposal had only a single week to read the specifications written by BearingPoint and submit their final bids. In essence, this turned the entire competitive bidding process into a sham.
Results? BearingPoint hardly received so much as a slap on the wrist. Instead, it was rewarded with that first nearly 80 million dollar contract and then, within less than two years, was allowed to “compete” for - no surprises here – and won an even larger contract for a follow-up project. This, despite the irregularities that surrounded the first contract and not to mention the fact that the USAID Inspector General’s office found the company out of compliance in its administration of a grant for similar work in Afghanistan.
Wait: there’s more . . .
Where does loyalty lie?
Kessler’s article tells us that not only do ten employees of BearingPoint, Inc. write State’s thirty page weekly “progress” report on Iraq but that staff, working out of offices in the State Department, “arrange the meetings, set the agendas, take notes, and provide summaries of the discussions” for the working groups across the US government that implement Iraq policy on a daily basis. In addition, according to Kessler, BearingPoint “maintains the website of the US Embassy in Baghdad.” Would someone please tell me how many other Embassy web pages are maintained by contractors - and why any are?
More to this post’s point, if BearingPoint writes the government’s weekly “Iraq report card” – whether the categories it uses to “classify” the data are still relevant or not – then it is highly likely that its employees sit in positions that no other contract staff does. Thus, BearingPoint employees have the unique ability to present information in the reports cited so as to make their own employer’s project results look good – or at least not as ineffectual as they might otherwise appear.
BearingPoint also has access to what was once considered privileged information by virtue of its staff’s strategic place - in Kessler’s words, “arranging interagency meetings, setting their agendas, taking notes and providing summaries of discussions.” They are, therefore, also in a unique position to learn what funding for what types of projects is coming down the line, to know how their competitors are faring and even which officials are likely to support what.
The usual rationale most frequently resorted to by the-privatize-the-government conservative crowd is that contracting out saves the government money because contract staffs are allegedly cheaper than permanent government workers. In reality, this assertion is highly questionable.
If contractors can be said to be cheaper, it would have to be because of retirement benefits. Excluding the pension question, however, I understand that a contract employee costs 20-50 percent more to the US government than does a full time government employee. And as Joseph Neff of the Raleigh, North Carolina News & Observer wrote on December 24, “US taxpayers pay the premiums to insurance companies for these contractors. When the contractors are killed or injured in war, taxpayers pay the benefits, too. . . . No agency regulates the premiums, and no one tracks the overall costs.”
It is undisputed that government short term contracts for commercial tasks and certain nongovernmental functions are beneficial. For example, no one expects the government to get into the paper towel/toilet paper manufacturing business. But selling out the policy-and-programs store to a private profit making enterprise is something else again. As Dexter pointed out in responding to Kessler’s article, the “normal functions of responsible government agencies [are] not technical or advisory services that can be ‘privatized’ without compromising the integrity and accountability” of government itself.
Tracing the entangled relationships between various kinds of campaign contributions and lobbying efforts is another ballgame. But it does concern me that BearingPoint contributed $2,000 to the 2006 reelection campaign of Bennie Thompson, who now chairs the House Homeland Security Committee, and $10,000 for the same campaign to Tom Davis, now the ranking member of the House Government Reform Committee. The good news: at least Henry Waxman, the latter committee’s new chair does not appear on any BearingPoint pay-off Congressional list that I have found and neither does Tom Lantos, the new chair of House Foreign Affairs Committee. This gives hope for genuine reform.
Only time will tell whether the 110th Congress will turn more than fleeting attention to BearingPoint and other corporations who have also reaped untold profits from the civilian side of the Iraq fiasco. But while they’re at it, I wish they’d also look at something else.
Once upon a time we had a career, professional civil and Foreign Service large enough to handle our government’s important tasks. This system supplanted the corrupt, inefficient spoils system that had gone before. The new Civil and Foreign Service systems were design to operate on merit principles, to avoid nepotism and to employ professionals with the consistent skills and expertise needed to operate an ever more complex government.
This system functioned well for years – but beginning in 1980 when the anti-government movement hit Washington, it began to falter. The politicization of the federal bureaucracy is now at fever pitch.
Yet, if US taxpayers want competent, uncorrupt government then they also need to bite the bullet and pay for it. This means a turn-around in the number and quality of full-time career government employees supported by strong ethics legislation with teeth in it.
Would this Congress please, at least, give both a try?
This post was prepared with assistance from Washington attorney Elizabeth D. Dyson who worked in the General Counsel’s office at the US Office of Personnel Management for 15 years.
1/06/2007
Outsourcing Trends for 2007
India will remain on top, but other countries and cities will show up on the radar.
January 5, 2007
By Kalpana Shah
Business transformation will drive global companies to seek out a greater degree of technology outsourcing in the year ahead, according to two consulting firms.
neoIT, a San Mateo, California-based consulting firm specializing in services globalization, released a research note Friday predicting several trends that will dominate the outsourcing world in 2007.
Several of neoIT’s predictions echoed those of Tholons, a Washington, D.C.-based investment, advisory, and management firm, which released its forecasts last month.
Both firms predict that M&A activity will increase this year, with outsourcing services companies buying consulting firms or those firms that have local knowledge in the countries where their customers reside.
Similarly, companies from developed countries will buy firms in countries like India, the Philippines, and Russia to gain access to lower-cost talent.
Cities such as Prague, in the Czech Republic; Halifax, Canada; Budapest, Hungary; Warsaw, Poland; Pune, India; and Bucharest, Romania have already become centers for outsourcing, but they are becoming more expensive and less differentiated.
As a result, other cities such as Bratislava, Slovakia; Ho Chi Minh City, Vietnam; Kolkata, India; Xi’an, China; Buenos Aires, Argentina; Krakow, Poland; Colombo, Sri Lanka; Dubai, United Arab Emirates; and Sofia, Bulgaria are on their way to becoming centers of outsourcing in 2007, according to the study from Tholons.
neoIT, however, predicts that top cities such as Bangalore, New Delhi, and Chennai—all in India—will continue to attract new companies in 2007 despite rising costs.
Cities of Excellence
India will remain the top destination for IT services, but buyers will look for cities of excellence in other countries where they can leverage employee skills.
Tholons strongly feels that the year 2007 will be that of small and medium enterprises (SMEs), which will play a significant role in the services globalization arena.
Anticipating the next wave, private equity investors will invest up to $5 billion in the Indian market to fund the expansion plans of business process outsourcing (BPO) and knowledge process outsourcing firms, predicted CEO Avinash Vashistha.
While not mentioning SMEs, neoIT thinks existing BPO firms will scale up the value chain by providing a layer of analytics on top of the work they already do, such as managing payroll and other human resources functions.
Both firms’ reports refer to the coming wave of outsourcing contract renewals. Tholons predicts that many large contracts will be carved into several pieces, with buyers opting for the best-of-breed approach in selecting service providers.
Countries such as the Philippines will see increased BPO activity while the high-tech Russian outsourcing industry will grow 40 percent next year. A country like Sri Lanka, offering cost-effective financial services, will see huge traction from buyers, according to the Tholons study.
The neoIT research brief also predicts that billing rates by top suppliers such as Accenture, IBM, Wipro, and Infosys will increase by 2 to 3 percent due to the growing demand for skilled resources, a rise in wages, and increased overhead incurred in maintaining quality or ensuring tight security.
January 5, 2007
By Kalpana Shah
Business transformation will drive global companies to seek out a greater degree of technology outsourcing in the year ahead, according to two consulting firms.
neoIT, a San Mateo, California-based consulting firm specializing in services globalization, released a research note Friday predicting several trends that will dominate the outsourcing world in 2007.
Several of neoIT’s predictions echoed those of Tholons, a Washington, D.C.-based investment, advisory, and management firm, which released its forecasts last month.
Both firms predict that M&A activity will increase this year, with outsourcing services companies buying consulting firms or those firms that have local knowledge in the countries where their customers reside.
Similarly, companies from developed countries will buy firms in countries like India, the Philippines, and Russia to gain access to lower-cost talent.
Cities such as Prague, in the Czech Republic; Halifax, Canada; Budapest, Hungary; Warsaw, Poland; Pune, India; and Bucharest, Romania have already become centers for outsourcing, but they are becoming more expensive and less differentiated.
As a result, other cities such as Bratislava, Slovakia; Ho Chi Minh City, Vietnam; Kolkata, India; Xi’an, China; Buenos Aires, Argentina; Krakow, Poland; Colombo, Sri Lanka; Dubai, United Arab Emirates; and Sofia, Bulgaria are on their way to becoming centers of outsourcing in 2007, according to the study from Tholons.
neoIT, however, predicts that top cities such as Bangalore, New Delhi, and Chennai—all in India—will continue to attract new companies in 2007 despite rising costs.
Cities of Excellence
India will remain the top destination for IT services, but buyers will look for cities of excellence in other countries where they can leverage employee skills.
Tholons strongly feels that the year 2007 will be that of small and medium enterprises (SMEs), which will play a significant role in the services globalization arena.
Anticipating the next wave, private equity investors will invest up to $5 billion in the Indian market to fund the expansion plans of business process outsourcing (BPO) and knowledge process outsourcing firms, predicted CEO Avinash Vashistha.
While not mentioning SMEs, neoIT thinks existing BPO firms will scale up the value chain by providing a layer of analytics on top of the work they already do, such as managing payroll and other human resources functions.
Both firms’ reports refer to the coming wave of outsourcing contract renewals. Tholons predicts that many large contracts will be carved into several pieces, with buyers opting for the best-of-breed approach in selecting service providers.
Countries such as the Philippines will see increased BPO activity while the high-tech Russian outsourcing industry will grow 40 percent next year. A country like Sri Lanka, offering cost-effective financial services, will see huge traction from buyers, according to the Tholons study.
The neoIT research brief also predicts that billing rates by top suppliers such as Accenture, IBM, Wipro, and Infosys will increase by 2 to 3 percent due to the growing demand for skilled resources, a rise in wages, and increased overhead incurred in maintaining quality or ensuring tight security.
China 'most attractive' offshore clinical trial location
China topped a new list of the most attractive low-cost global locations to run clinical trials outside the US.
India and Russia trailed China in the poll, with Brazil and Czech Republic following closely behind.
Clinical trials account for two thirds of the development cost for new drugs and offshoring to locations outside the US is becoming a common way to help pharma firms keep costs down by providing access to a new range of patients, aiding recruitment.
Other factors such as cheaper labour and site fees also often help.
As a result, in 2005 almost half of the 1200 clinical trials conducted by the 12 largest US pharmaceutical companies included an offshore location, according to an analysis by consulting firm AT Kearney of data voluntarily submitted to the US government by pharma companies.
As part of the analysis, A.T. Kearney also compiled “The country attractiveness index for clinical trials" - a list of the 15 most popular offshore locations.
What may be a surprise is that China, despite its bureaucracy, government red tape and questions over intellectual property, has stolen the top spot from India who is seemingly more active in this arena and more in tune to the needs of the West.
According to the report, China was chosen because it has the largest urban patient population in the world – providing a vast patient pool – in addition to a huge network of hospitals with over 2.5m doctors, nurses and technicians, all on significantly lower salaries than their western counterparts.
Due largely to this, conducting a trial in China could cost half of that in the US, said the report, titled: "Make Your Move: Taking Clinical Trials to the Best Location."
India features next behind China in the popularity stakes, offering similar advantages.
The governments of both countries are also actively trying to encourage new clinical activity from foreign firms, introducing a series of new regulations and improving existing ones in order to simplify and streamline the clinical trials process.
Meanwhile, Russia took third spot, again, the appeal being its low-cost nature and its large available patient pool, many of whom are treatment naive.
In addition, the Russian hospital system treats all patients who have similar symptoms on the same ward, further assisting the recruitment process, said the report.
“Such factors allow patients to be recruited up to ten times as fast as in the US.”
Data for the analysis was derived from both primary and secondary sources, including research with top pharmaceutical executives and data from organisations including The World Health Organisation.
Five key areas were evaluated during the decision-making process – patient availability, cost-efficiency, expertise, regulatory conditions and infrastructure.
India and Russia trailed China in the poll, with Brazil and Czech Republic following closely behind.
Clinical trials account for two thirds of the development cost for new drugs and offshoring to locations outside the US is becoming a common way to help pharma firms keep costs down by providing access to a new range of patients, aiding recruitment.
Other factors such as cheaper labour and site fees also often help.
As a result, in 2005 almost half of the 1200 clinical trials conducted by the 12 largest US pharmaceutical companies included an offshore location, according to an analysis by consulting firm AT Kearney of data voluntarily submitted to the US government by pharma companies.
As part of the analysis, A.T. Kearney also compiled “The country attractiveness index for clinical trials" - a list of the 15 most popular offshore locations.
What may be a surprise is that China, despite its bureaucracy, government red tape and questions over intellectual property, has stolen the top spot from India who is seemingly more active in this arena and more in tune to the needs of the West.
According to the report, China was chosen because it has the largest urban patient population in the world – providing a vast patient pool – in addition to a huge network of hospitals with over 2.5m doctors, nurses and technicians, all on significantly lower salaries than their western counterparts.
Due largely to this, conducting a trial in China could cost half of that in the US, said the report, titled: "Make Your Move: Taking Clinical Trials to the Best Location."
India features next behind China in the popularity stakes, offering similar advantages.
The governments of both countries are also actively trying to encourage new clinical activity from foreign firms, introducing a series of new regulations and improving existing ones in order to simplify and streamline the clinical trials process.
Meanwhile, Russia took third spot, again, the appeal being its low-cost nature and its large available patient pool, many of whom are treatment naive.
In addition, the Russian hospital system treats all patients who have similar symptoms on the same ward, further assisting the recruitment process, said the report.
“Such factors allow patients to be recruited up to ten times as fast as in the US.”
Data for the analysis was derived from both primary and secondary sources, including research with top pharmaceutical executives and data from organisations including The World Health Organisation.
Five key areas were evaluated during the decision-making process – patient availability, cost-efficiency, expertise, regulatory conditions and infrastructure.
IT outsourcing predictions for 2007
Luxoft, one of Russia's leading providers of IT outsourcing development and services to companies like IBM, Dell, Deutsche Bank, T-Mobile and others, has issued its predictions for the IT outsourcing industry in 2007. These trends and predictions cover a range of technical, business and relationship pulse-points and demonstrate the increasing maturity of the global IT outsourcing market. Top areas to watch include:.
* Outsourcing Gets More Agile - In 2006 client interest grew in employing the Agile development methodology in their outsourced environments.
This trend will continue to expand in popularity in 2007.
With the right people, project management and metrics in place this highly collaborative approach, traditionally thought to be only for in-house teams, will continue to speed client solutions to market.
* Hybrid Models Become the Norm - No one approach - in-house, on-site, ODCs or captive models - will rule the day in 2007.
Each company will assess its available global resource and skill pool and choose a variety of outsourcing and in-house combinations to reach its desired business and technical goals.
Outsourcing, whatever model or mix is ultimately chosen, will become as commonplace as Six Sigma.
* Retention Eases Tensions - Clients want stable and vested vendor teams working on their engagements.
In 2007 they will increasingly demand that vendors meet, and preferably exceed, industry retention rates as a requirement of winning and doing business.
* The Security Bar Is Raised - In 2007, all forms of security will be on the shortlist for successful outsourcing engagements - systems, data, physical, staff and disaster recovery.
These elements must be locked down and fully integrated before true security can be achieved and clients will increasingly demand excellence on this front.
* Nearshoring Comes Closer - No matter where companies are headquartered or operating, they will increasingly look to nearshore development solutions to round out their outsourcing portfolios.
In 2007 there will be increasing demand for resources in Europe, Eastern Europe and Canada but this phenomenon will be seen around the globe.
* Value Becomes King Over Cost - With the outsourcing market continuing to mature, tunnel vision around pure cost savings will widen to other success factors such as the ability to deliver complex outsourcing services, relationship quality and measurable ROI.
In 2007 companies will look for outsourcing partners who can provide higher value services; who have mature and proven - yet flexible - engineering, quality, security and business processes; who can forge quick and strong working relationships; who are well trained and bring specific technical and vertical expertise; and who will become vested in their success.
* Fluency of Many Forms Is a Must - It's no longer enough to be fluent in English- and other key business languages - to do outsourcing business globally.
In 2007, fluency in specific technologies, industries, and methodologies will continue to grow in importance as 'must haves' for any serious outsourcing vendor.
* Player Consolidation Continues - With the need for outsourcing providers to ensure scalability of services and support for their clients, consolidation among smaller service providers with similar strengths and expertise will continue in 2007.
Outsourcing companies also will make expansion plans to compete with global leaders, acquire vertical domain expertise and gain access to global resource pools.
Player consolidation will be most visible in the up-and-coming outsourcing markets like China and Russia, with possible buyouts across the regions.
* In 2006 financial and banking companies became larger consumers of IT outsourcing - In 2007, this trend will continue with areas like CRM in demand.
Key factors for vertical success will increasingly include security, risk and financial market diversification, disaster recovery planning and engagement staffing standards.
We will also see more real time areas like on-floor trading technology get in the outsourcing mix.
* Russian IT Outsourcing Sees More Record Growth - Over the past few years Russia has seen explosive growth in its IT outsourcing business - now a $1B+ market.
With its strong technical performance and heritage, well-educated developer and business workforce, proven Western business practices, and increasing Eastern European connection, Russia is poised for another year of stellar growth and value add to clients.
* Outsourcing Gets More Agile - In 2006 client interest grew in employing the Agile development methodology in their outsourced environments.
This trend will continue to expand in popularity in 2007.
With the right people, project management and metrics in place this highly collaborative approach, traditionally thought to be only for in-house teams, will continue to speed client solutions to market.
* Hybrid Models Become the Norm - No one approach - in-house, on-site, ODCs or captive models - will rule the day in 2007.
Each company will assess its available global resource and skill pool and choose a variety of outsourcing and in-house combinations to reach its desired business and technical goals.
Outsourcing, whatever model or mix is ultimately chosen, will become as commonplace as Six Sigma.
* Retention Eases Tensions - Clients want stable and vested vendor teams working on their engagements.
In 2007 they will increasingly demand that vendors meet, and preferably exceed, industry retention rates as a requirement of winning and doing business.
* The Security Bar Is Raised - In 2007, all forms of security will be on the shortlist for successful outsourcing engagements - systems, data, physical, staff and disaster recovery.
These elements must be locked down and fully integrated before true security can be achieved and clients will increasingly demand excellence on this front.
* Nearshoring Comes Closer - No matter where companies are headquartered or operating, they will increasingly look to nearshore development solutions to round out their outsourcing portfolios.
In 2007 there will be increasing demand for resources in Europe, Eastern Europe and Canada but this phenomenon will be seen around the globe.
* Value Becomes King Over Cost - With the outsourcing market continuing to mature, tunnel vision around pure cost savings will widen to other success factors such as the ability to deliver complex outsourcing services, relationship quality and measurable ROI.
In 2007 companies will look for outsourcing partners who can provide higher value services; who have mature and proven - yet flexible - engineering, quality, security and business processes; who can forge quick and strong working relationships; who are well trained and bring specific technical and vertical expertise; and who will become vested in their success.
* Fluency of Many Forms Is a Must - It's no longer enough to be fluent in English- and other key business languages - to do outsourcing business globally.
In 2007, fluency in specific technologies, industries, and methodologies will continue to grow in importance as 'must haves' for any serious outsourcing vendor.
* Player Consolidation Continues - With the need for outsourcing providers to ensure scalability of services and support for their clients, consolidation among smaller service providers with similar strengths and expertise will continue in 2007.
Outsourcing companies also will make expansion plans to compete with global leaders, acquire vertical domain expertise and gain access to global resource pools.
Player consolidation will be most visible in the up-and-coming outsourcing markets like China and Russia, with possible buyouts across the regions.
* In 2006 financial and banking companies became larger consumers of IT outsourcing - In 2007, this trend will continue with areas like CRM in demand.
Key factors for vertical success will increasingly include security, risk and financial market diversification, disaster recovery planning and engagement staffing standards.
We will also see more real time areas like on-floor trading technology get in the outsourcing mix.
* Russian IT Outsourcing Sees More Record Growth - Over the past few years Russia has seen explosive growth in its IT outsourcing business - now a $1B+ market.
With its strong technical performance and heritage, well-educated developer and business workforce, proven Western business practices, and increasing Eastern European connection, Russia is poised for another year of stellar growth and value add to clients.
IDC: Asia Pacific IT market to reach US$132b in 2007
The overall IT market in Asia Pacific (excluding Japan) is forecasted to reach US$132 billion in 2007, fueled by increasing domestic demand and economic growth in the region spearheaded by India and China, according to IDC’s annual forecast.
“The region’s astounding rates of economic and IT market growth have resulted in dynamic and rapidly evolving corporate and consumer markets. This is a role the region has gradually accepted, but the growth is now taking off explosively,” said Eva Au, managing director for IDC Asia/Pacific.
According to her, the region’s economic empowerment has created more discerning and demanding IT users “who now require technology which is sensitive to the region’s unique demands and are increasingly responsive to the needs of mobile communications, converged devices, and results-oriented IT projects."
IDC predicts the IT market in Asia Pacific excluding Japan (APEJ) to reach US$132 billion in 2007, a 10 percent growth over 2006.
Together, China and India will make up more than 43 percent of the region’s IT spend, with China remaining the largest IT market consisting 32 percent of the region’s IT spending and India growing at a remarkable 23 percent.
While the major economies are expected to continue to deliver strong results, both China and India will begin a more serious look internally, focusing on bridging urban/rural divides and developing infrastructure.
"These changes will require specific knowledge of domestic markets for companies to successfully compete within these major markets,” said Au.
IDC believes there will be three major areas of focus in 2007 in relation to the ICT (Information and Communications Technology) market in the region:
Innovative and useful services: With the wireless internet experience becoming a reality for businesses and consumers, this will provide added impetus for companies to roll out mobility services to help us work and play.
Standardization to simplify and reduce costs: Asian enterprises will simplify and adopt a service orientation in IT architectures by standardizing on components. System Integration vendors will look at reducing risk for project delivery by standardizing their service offerings.
Smarter approaches to markets: Software vendors in APEJ are responding to the need for competitive offerings, particularly for Small and Medium-sized Businesses (SMB), as larger firms lag with practical and straightforward SMB offerings; Business Process Outsourcing (BPO) vendors are seeking to build longer term relationships with Asian firms, which have been slow to take advantage of the BPO phenomenon.
“The region’s astounding rates of economic and IT market growth have resulted in dynamic and rapidly evolving corporate and consumer markets. This is a role the region has gradually accepted, but the growth is now taking off explosively,” said Eva Au, managing director for IDC Asia/Pacific.
According to her, the region’s economic empowerment has created more discerning and demanding IT users “who now require technology which is sensitive to the region’s unique demands and are increasingly responsive to the needs of mobile communications, converged devices, and results-oriented IT projects."
IDC predicts the IT market in Asia Pacific excluding Japan (APEJ) to reach US$132 billion in 2007, a 10 percent growth over 2006.
Together, China and India will make up more than 43 percent of the region’s IT spend, with China remaining the largest IT market consisting 32 percent of the region’s IT spending and India growing at a remarkable 23 percent.
While the major economies are expected to continue to deliver strong results, both China and India will begin a more serious look internally, focusing on bridging urban/rural divides and developing infrastructure.
"These changes will require specific knowledge of domestic markets for companies to successfully compete within these major markets,” said Au.
IDC believes there will be three major areas of focus in 2007 in relation to the ICT (Information and Communications Technology) market in the region:
Innovative and useful services: With the wireless internet experience becoming a reality for businesses and consumers, this will provide added impetus for companies to roll out mobility services to help us work and play.
Standardization to simplify and reduce costs: Asian enterprises will simplify and adopt a service orientation in IT architectures by standardizing on components. System Integration vendors will look at reducing risk for project delivery by standardizing their service offerings.
Smarter approaches to markets: Software vendors in APEJ are responding to the need for competitive offerings, particularly for Small and Medium-sized Businesses (SMB), as larger firms lag with practical and straightforward SMB offerings; Business Process Outsourcing (BPO) vendors are seeking to build longer term relationships with Asian firms, which have been slow to take advantage of the BPO phenomenon.
China to promote service trade
The Ministry of Commerce (MOC) has published a "Report on Service Trade Development in China", urging to seize the opportunity in the current service trade transfer.
The report points out that the focus of international industrial transfer to China is shifting from manufacturing industry to service industry.
Statistics show that service industry makes up over 60 percent of the world's total economic volume. Finance, insurance, tourism and consultation are major sectors where international transfer is conducted.
According to the report, efforts should be put to ensure the unification of service trade sector and to promote exports of computer, information service, finance and insurance sectors to form a competitive industrial system.
MOC will contribute to improve policies and regulations concerning service trade, to implement a brand strategy and to foster leading service trade enterprises. It will also take a positive attitude in developing outsourcing service.
The report shows that China's export of service trade grew by nearly 29 times in 1982-2005 period, with an annual growth of 15.9 percent which was two times the world's average.
However, the proportion of service trade export in China's total export remained below 10 percent, only half of the world's average, and long-term deficit was reported in the country's service trade.
The report points out that the focus of international industrial transfer to China is shifting from manufacturing industry to service industry.
Statistics show that service industry makes up over 60 percent of the world's total economic volume. Finance, insurance, tourism and consultation are major sectors where international transfer is conducted.
According to the report, efforts should be put to ensure the unification of service trade sector and to promote exports of computer, information service, finance and insurance sectors to form a competitive industrial system.
MOC will contribute to improve policies and regulations concerning service trade, to implement a brand strategy and to foster leading service trade enterprises. It will also take a positive attitude in developing outsourcing service.
The report shows that China's export of service trade grew by nearly 29 times in 1982-2005 period, with an annual growth of 15.9 percent which was two times the world's average.
However, the proportion of service trade export in China's total export remained below 10 percent, only half of the world's average, and long-term deficit was reported in the country's service trade.
China aims for outsourcing supremacy
The Chinese government has announced plans to consolidate their outsourcing industry in an effort to capture business from other developing countries such as India.
Intrinsic advantages that China offers such as lower wages need to be combined with financial and logistical improvements in other areas if the People's Republic is to capitalise fully on their potential as a major outsourcing hub.
In order to combat the fragmentation seen within China's outsourcing industry Assistant Minister of Commerce, Fu Ziying, has outlined plans to develop 10 outsourcing base cities, starting with Shanghai, Dalian, Xi'an, Shenzhen and Chengdu.
Fu hopes the scheme will encourage multinationals to shift offshore outsourcing services to China and promote up to a 1,000 native outsourcing enterprises.
He said: "The Ministry of Commerce is to channel social resources into innovation-oriented enterprises, and support policies will focus on enterprises rather than export products."
India looking east
Remarkably, the increasing opportunities available in China aren't just attracting the usual expected clients. Developing countries such as India are also taking advantage. Indian outsourcing company Tata Consultancy Services (TCS) are expanding their operations into China, adding up to 5,000 new workers to their Chinese operations over the next 3 to 5 years.
A further boost to China's outsourcing industry is provided by a recent lifting of a World Trade Organisation (WTO) restriction, allowing foreign banks in China to operate in local currency.
The resultant expansion of the banks networks coupled with the introduction of new services will make it easier for European and American pharmaceutical companies to outsource services to China.
Bridge Pharmaceuticals, a preclinical CRO based in the US, have also moved into China by building a new animal research facility at the Zhongguancun Life Science Park in Beijing that operates to US level good laboratory practice (GLP) standards.
Chinese companies are becoming more outward looking especially with respect to conforming to international standards. For example, SynTheAll Pharmaceuticals, the manufacturing unit of WuXi PharmaTech, China's leading supplier of pharmaceutical R&D outsourcing services, has been recertified as International Organization for Standardization (ISO) 9001:2000 compliant.
Intrinsic advantages that China offers such as lower wages need to be combined with financial and logistical improvements in other areas if the People's Republic is to capitalise fully on their potential as a major outsourcing hub.
In order to combat the fragmentation seen within China's outsourcing industry Assistant Minister of Commerce, Fu Ziying, has outlined plans to develop 10 outsourcing base cities, starting with Shanghai, Dalian, Xi'an, Shenzhen and Chengdu.
Fu hopes the scheme will encourage multinationals to shift offshore outsourcing services to China and promote up to a 1,000 native outsourcing enterprises.
He said: "The Ministry of Commerce is to channel social resources into innovation-oriented enterprises, and support policies will focus on enterprises rather than export products."
India looking east
Remarkably, the increasing opportunities available in China aren't just attracting the usual expected clients. Developing countries such as India are also taking advantage. Indian outsourcing company Tata Consultancy Services (TCS) are expanding their operations into China, adding up to 5,000 new workers to their Chinese operations over the next 3 to 5 years.
A further boost to China's outsourcing industry is provided by a recent lifting of a World Trade Organisation (WTO) restriction, allowing foreign banks in China to operate in local currency.
The resultant expansion of the banks networks coupled with the introduction of new services will make it easier for European and American pharmaceutical companies to outsource services to China.
Bridge Pharmaceuticals, a preclinical CRO based in the US, have also moved into China by building a new animal research facility at the Zhongguancun Life Science Park in Beijing that operates to US level good laboratory practice (GLP) standards.
Chinese companies are becoming more outward looking especially with respect to conforming to international standards. For example, SynTheAll Pharmaceuticals, the manufacturing unit of WuXi PharmaTech, China's leading supplier of pharmaceutical R&D outsourcing services, has been recertified as International Organization for Standardization (ISO) 9001:2000 compliant.
IDC�s Top 10 predictions for Asia Pacific
The rise of global players among software developers in the region and the growing adoption of service-oriented architecture among users are among IDC’s key predictions expected to shape the IT industry in Asia Pacific in 2007.
The following are IDC’s top 10 predictions:
1. China and India continues to lead the pack as the next opportunity - emerging Asia - approaches BRIC (Brazil, Russia, India and China)-like growth rates
GDP growth in China and India are predicted to hit 8.3 percent and 7.7 percent, respectively. As economic growth rates cool slightly, these countries will be pushed to look at domestic markets as recent years of prosperity drive IT infrastructure build-out and the closing of domestic urban/rural gaps. These developments will require vendors to have very deep sub-regional local knowledge to extract big wins in these markets. Further, Emerging Asian Countries (EACs) - Bangladesh, Pakistan, Sri Lanka, and Vietnam will see spending power and IT infrastructure budgets accelerate to approach similar growth rates of BRIC.
2. Eastern heroes emerge to capture regional and global software markets
The rise of “Eastern Heroes” includes the likes of UFIDA Software Co. Ltd.'s UFSoft, Kingdee International Software Group Co. Ltd., Mincom Ltd., Ahnlab Inc., and Rising Software Australia Pty Ltd. to take the lead will give more established global vendors a run for their money. These firms have regional and even global ambitions, particularly in the underserved SMB markets. They are bolstered by their belief that they have far more practical experience to integrate into their solutions and hence able to build applications that are simple to roll out and easy to manage.
3. SOA momentum gathers with new entry points
Nearly two-thirds of midsize and large corporate firms in Asia Pacific Excluding Japan (APEJ) will commit to early stage service oriented architecture (SOA) adoption in 2007, with initial projects concluding in 2008. The appeal of SOA has to be tempered with caution regarding internal process assessments and re-engineering. As many corporations in the region are still struggling with managing business processes, a near-term opportunity may lie with vendors and systems integrators to aid with both re-engineering and roll-out.
4. Consulting and systems integration vendors refine delivery models to improve profitability
As vendors have been forced to over-commit with extra services to meet tight delivery timelines, profitability has often taken a beating. Consulting and systems integration (C&SI) firms will, in 2007, take a more discreet service approach to counter the erosion of their profitability through “standardization” of these services. These services will have standard prices, fixed service level agreements and pre-defined deliverables.
5. BPO customers test drive before making long-term commitments.
New BPO projects will be won from Asian customers through the provision of short term pilot projects first, then followed by long-term contracts after the BPO vendor proves capable of meeting the Asian customer’s needs. This is a different model from the typical one to serve Western clients, who are more willing to transit to BPO based on compelling economics. The vendor-customer relationship is key to Asian clients, and BPOs will deliver this through service innovation in 2007.
6. Vendors chase the long tail in the SMB market
2007 will be marked by an aggressive focus from all major vendors to broaden and deepen their coverage of the SMB sector in the APEJ region. The region’s SMB market has seen growth rates in recent years approaching 10%, with the SMB market breaking US$52 billion in 2007.
7. Services get caught in the wireless mesh
After much hype, 2007 will finally be the year where wireless mesh services will emerge in Asia. Existing deployments in Taipei will push Malaysia, Singapore, and others to champion their own metropolitan and regional networks, offering wide-area coverage and limited mobile voice over IP (VoIP) capability. IDC expects the wide-area metropolitan Wi-Fi market to double in 2007 to US$250 million.
8. Fixed-Mobile-Convergence enables mass-market consumer mobility
IDC predicts that telecom network operators will begin initial deployments of fixed-mobile convergence (FMC) services in 2007. Technologies such as WiMAX, mesh networking, peer-to-peer computing, software-defined radio equipment, USB-based HSDPA modems, and IPv6 upgrades to Internet equipment have helped push the capability and desirability of FMC services and networks.
9. The evolution of laptops take over both mature and emerging markets in Asia by storm
Notebooks will be the fastest-growing PC form factor in the APEJ region with over 25 percent unit growth in 2007, driven by low prices and growing awareness that help to create more multiple PC households and increased migration away from desktops. While notebook growth is aggressive, IDC predicts the 3G-enabled notebook segment will disappoint in 2007, with bottlenecks at the network operators causing delayed demand.
10. Content is king as HDTV and IPTV emerge in Asia/Pacific
Both high-definition television (HDTV) and IPTV have seen significant growth in recent years. For HDTV, the adoption of high-dollar HD-capable TV sets is expected to pick up as viewers adopt equipment in preparation for HD broadcasts of the 2008 Beijing games. IPTV has seen astonishing growth rates, which will continue in 2007 and 2008 at 76 percent and 168 percent respectively. In both cases, however, the lack of content, due largely to regulatory lags with HDTV and geographic exclusivity with IPTV, currently inhibits large scale levels of uptake.
The following are IDC’s top 10 predictions:
1. China and India continues to lead the pack as the next opportunity - emerging Asia - approaches BRIC (Brazil, Russia, India and China)-like growth rates
GDP growth in China and India are predicted to hit 8.3 percent and 7.7 percent, respectively. As economic growth rates cool slightly, these countries will be pushed to look at domestic markets as recent years of prosperity drive IT infrastructure build-out and the closing of domestic urban/rural gaps. These developments will require vendors to have very deep sub-regional local knowledge to extract big wins in these markets. Further, Emerging Asian Countries (EACs) - Bangladesh, Pakistan, Sri Lanka, and Vietnam will see spending power and IT infrastructure budgets accelerate to approach similar growth rates of BRIC.
2. Eastern heroes emerge to capture regional and global software markets
The rise of “Eastern Heroes” includes the likes of UFIDA Software Co. Ltd.'s UFSoft, Kingdee International Software Group Co. Ltd., Mincom Ltd., Ahnlab Inc., and Rising Software Australia Pty Ltd. to take the lead will give more established global vendors a run for their money. These firms have regional and even global ambitions, particularly in the underserved SMB markets. They are bolstered by their belief that they have far more practical experience to integrate into their solutions and hence able to build applications that are simple to roll out and easy to manage.
3. SOA momentum gathers with new entry points
Nearly two-thirds of midsize and large corporate firms in Asia Pacific Excluding Japan (APEJ) will commit to early stage service oriented architecture (SOA) adoption in 2007, with initial projects concluding in 2008. The appeal of SOA has to be tempered with caution regarding internal process assessments and re-engineering. As many corporations in the region are still struggling with managing business processes, a near-term opportunity may lie with vendors and systems integrators to aid with both re-engineering and roll-out.
4. Consulting and systems integration vendors refine delivery models to improve profitability
As vendors have been forced to over-commit with extra services to meet tight delivery timelines, profitability has often taken a beating. Consulting and systems integration (C&SI) firms will, in 2007, take a more discreet service approach to counter the erosion of their profitability through “standardization” of these services. These services will have standard prices, fixed service level agreements and pre-defined deliverables.
5. BPO customers test drive before making long-term commitments.
New BPO projects will be won from Asian customers through the provision of short term pilot projects first, then followed by long-term contracts after the BPO vendor proves capable of meeting the Asian customer’s needs. This is a different model from the typical one to serve Western clients, who are more willing to transit to BPO based on compelling economics. The vendor-customer relationship is key to Asian clients, and BPOs will deliver this through service innovation in 2007.
6. Vendors chase the long tail in the SMB market
2007 will be marked by an aggressive focus from all major vendors to broaden and deepen their coverage of the SMB sector in the APEJ region. The region’s SMB market has seen growth rates in recent years approaching 10%, with the SMB market breaking US$52 billion in 2007.
7. Services get caught in the wireless mesh
After much hype, 2007 will finally be the year where wireless mesh services will emerge in Asia. Existing deployments in Taipei will push Malaysia, Singapore, and others to champion their own metropolitan and regional networks, offering wide-area coverage and limited mobile voice over IP (VoIP) capability. IDC expects the wide-area metropolitan Wi-Fi market to double in 2007 to US$250 million.
8. Fixed-Mobile-Convergence enables mass-market consumer mobility
IDC predicts that telecom network operators will begin initial deployments of fixed-mobile convergence (FMC) services in 2007. Technologies such as WiMAX, mesh networking, peer-to-peer computing, software-defined radio equipment, USB-based HSDPA modems, and IPv6 upgrades to Internet equipment have helped push the capability and desirability of FMC services and networks.
9. The evolution of laptops take over both mature and emerging markets in Asia by storm
Notebooks will be the fastest-growing PC form factor in the APEJ region with over 25 percent unit growth in 2007, driven by low prices and growing awareness that help to create more multiple PC households and increased migration away from desktops. While notebook growth is aggressive, IDC predicts the 3G-enabled notebook segment will disappoint in 2007, with bottlenecks at the network operators causing delayed demand.
10. Content is king as HDTV and IPTV emerge in Asia/Pacific
Both high-definition television (HDTV) and IPTV have seen significant growth in recent years. For HDTV, the adoption of high-dollar HD-capable TV sets is expected to pick up as viewers adopt equipment in preparation for HD broadcasts of the 2008 Beijing games. IPTV has seen astonishing growth rates, which will continue in 2007 and 2008 at 76 percent and 168 percent respectively. In both cases, however, the lack of content, due largely to regulatory lags with HDTV and geographic exclusivity with IPTV, currently inhibits large scale levels of uptake.
2006: Outsourcing’s Year of Contract Renewals
Yes, offshore firms are making their presence felt. But the incumbents seem to have learned from their mistakes, and are fast making amends, in the process, wining back the confidence of the customers. The result: Contract failures and bitter re-negotiations of 2004 and 2005 gave way to large number of renewals and extensions in 2006. Here is a brief round up
by Imrana Khan
After a series of failures in older outsourcing contracts like the IBM-JP Morgan and Sears-CSC in 2004–05, coupled with consistent rise of the offshore firms from India, many market observers predicted in the beginning of 2006 that it was only a matter of time before the traditional large North American service providers give way to the new offshore service providers and specialized firms. What added to the fears — or expectations — depending on which camp you are in, is the announcement of outsourcing advisory firm, TPI, that as much as $100 billion of outsourcing contracts due for renewal between 2006 and 2007, and the incumbent vendors could well lose their market share.
And they are losing their market share, strictly speaking. However, as 2006 has proved, they are not going anywhere. If anything, they have consolidated their position a little more in last year. So, while still losing a bit of market share to the rising offshore vendors, firms like Accenture, CSC, ACS and an almost-written-off EDS have managed to renew many of their older contracts in 2006, putting to rest speculations that the contact cancellations trend would continue through 2006.
Extensions Galore
The year 2006 saw probably more contract renewals and extensions in recent years. Some of the large renewed deals were GM-EDS deal (part of a multisourcing deal); 7 Eleven-Excellerate HRO contract; BAE-CSC IT contract; PepsiAmerica-ACS BPO contract; Aetna-ACS BPO contract; InBev-Logica IT contract; Barclays-Siemens BPO contract; DirecTV-HP ITO contract; NAB-Accenture FAO contract; CIBC-HP IT contract and T-Mobile-T-Systems contract.
While not many analysts were right about the fate of deals, where they got bang on, was the size of deals: Larger deals of over $500 million were limited in number, thanks to the comfort level that organizations today have with multisourcing and more sophisticated instruments to control those deals.
It was not surprising, hence that most of the renewed contracts were in the range of $50–$200 million. Some of the contracts that were in this range include the Atena-ACS deal ($56 million), Barclays-Xansa ($140 million), AMP-CSC ($146 million), The Whitebread Group-CSC ($48 million), Laurentian Bank of Canada-CGI Group ($100 million), and so on.
The terms of maximum deals were extended in the last months of the year. For instance, the deals like, Eastman Kodak Company-Nortel, Lloyds TSB-First Data International, MERSCORP-EDS, Advanta Bank-First Data International, U.S. Postal Service-HP, Dansk Supermarket-IBM, Ann Taylor-Convergys, Mutual Concept Computer Group-Nexolink, Farm Credit Canada-IBM, 7-Eleven-ExcellerateHRO, CI Financial Income Fund-RBC Dexia Investor Services, Fonterra Co-operative-EDS, U.S. Health and Human Services Department-Thomson Medstat, Duro Textiles-OneNeck IT Services, First Federal-First Data, BT-Capita and Ford-TechTeam.
Winners and Losers
For CSC, EDS and ACS, 2006 was proved immensely favorable. CSC inked several ITO contracts extensions, including the renewal of deals with Airbus North America Engineering, The Whitbread Group, Powercor-CitiPower, OneSteel, AMP, BAE Systems and Schroders. In the same time period, EDS renewed deals with customers like GM, MERSCORP, Fonterra Co-operative, Visanet, AEGON and U.S. Navy. ACS also inked many ITO and BPO agreements with European and American customers such as Aetna, PepsiAmericas, City of Riverside, First Horizon Home Loan Corporation and AmeriHealth Mercy/Keystone.
And of course, IBM also signed many renewal agreements, such as those with Dansk Supermarked, Farm Credit Canada, Symcor and UPM.
What It Means
In all aspects of outsourcing, 2006 was a year of action with lessened hype and more mature approach to outsourcing. Gone were the political rhetoric that marked 2004; gone was the fear that outsourcing, after all, may be losing out in 2005. In fact, like the single-most important thing that 2006 gave rise to —multisourcing — 2006 showed most definitely that you do not necessarily have to spend most of your time and energy in figuring out the next big thing. You should be comfortable with many ideas; many vendors; many models.
The offshore firms learned a lot to get a bigger slice; the incumbents learned new realities and put them into practice. The result was a much more mature option for the customers. Some of the renewed deals have taken into account new market realities. For the customer, it is best of both worlds.
Renewed Contracts in 2006
Month Customer Service Provider Engagement Period
(in years) Value $
(in million) Region
December Eastman Kodak Company Nortel ITO 3 NA North America
December Lloyds TSB First Data International BPO 7 NA Europe
December MERSCORP EDS BPO NA NA North America
December Advanta Bank First Data International BPO NA NA North America
December U.S. Postal Service HP ITO NA NA North America
December Dansk Supermarked IBM ITO 3 NA Europe
December Ann Taylor Convergys BPO NA NA
December Mutual Concept Computer Group Nexolink ITO NA NA Europe
December Farm Credit Canada IBM ITO 5 36 Europe
December 7-Eleven ExcellerateHRO HRO 5 (approx.) NA North America
December CI Financial Income Fund RBC Dexia Investor Services BPO 5 NA Canada
December Fonterra Co-operative EDS ITO 4 NA
December U.S. Health and Human Services Department Thomson Medstat BPO 3 14.9 North America
December Duro Textiles OneNeck IT Services ITO NA NA North America
December First Federal First Data FAO NA NA North America
December Ford TechTeam ITO 3 NA
November TD Banknorth Metavante BPO NA NA
November Siemens Business Services Barclays BPO 2 NA
November Laurentian Bank of Canada CGI Group 5 100 Canada
October Airbus North America Engineering CSC ITO 6 20 North America
October Symcor IBM ITO 3 26.6 Canada
October Farm Credit Canada ISM Canada ITO 5 32 Canada
October Infocrossing State of Missouri BPO 1 18 North America
October The Whitbread Group CSC ITO NA 48 Europe
October Powercor-CitiPower CSC ITO 5 13 Australia
October UPM IBM ITO NA NA Europe
October Marine One Acceptance ACS ITO 3 NA North America
September First Horizon Home Loan Corporation ACS BPO NA NA North America
September DirectTV HP ITO 7 500
September Perot Systems Owens & Minor ITO 5 NA
September Visanet EDS ITO and BPO 10 209
September T-Mobile T-Systems ITO NA 1.28b Europe
August Canadian Imperial Bank of Commerce (CIBC) HP ITO NA NA North America
August Cambridge City Council Serco ITO NA NA North America
August National Australia Bank Accenture BPO NA NA Australia
August OneSteel CSC ITO 37 2 Australia
July AEGON EDS ITO 5 NA Europe
July EMC Unisys ITO NA NA
June REAAL Insurance Unisys ITO NA NA Europe
June East Jefferson General Hospital Phoenix Health Systems ITO NA NA North America
June AIG Technologies Unisys ITO 3 NA North America
June AMP CSC ITO 4 146
June City of Riverside ACS ITO 1 5.52 North America
June AIG Technologies Unisys ITO NA NA
June Barclays Xansa ITO 5 140
June AmeriHealth Mercy/Keystone ACS BPO NA NA North America
May Jetstar Airways Navitaire BPO NA NA
May BAE Systems CSC ITO 5 1.9b
April PepsiAmericas ACS BPO 3 5 North America
March Iron Mountain Symphony Services ITO NA NA North America
March U.S. Navy EDS ITO NA 3b North America
March Schroders CSC ITO NA 235 Europe
January OP Bank Group TietoEnator ITO NA NA Europe
January Aetna ACS BPO 3.5 56
January Thames Water Xansa BPO 2 (approx.) NA
by Imrana Khan
After a series of failures in older outsourcing contracts like the IBM-JP Morgan and Sears-CSC in 2004–05, coupled with consistent rise of the offshore firms from India, many market observers predicted in the beginning of 2006 that it was only a matter of time before the traditional large North American service providers give way to the new offshore service providers and specialized firms. What added to the fears — or expectations — depending on which camp you are in, is the announcement of outsourcing advisory firm, TPI, that as much as $100 billion of outsourcing contracts due for renewal between 2006 and 2007, and the incumbent vendors could well lose their market share.
And they are losing their market share, strictly speaking. However, as 2006 has proved, they are not going anywhere. If anything, they have consolidated their position a little more in last year. So, while still losing a bit of market share to the rising offshore vendors, firms like Accenture, CSC, ACS and an almost-written-off EDS have managed to renew many of their older contracts in 2006, putting to rest speculations that the contact cancellations trend would continue through 2006.
Extensions Galore
The year 2006 saw probably more contract renewals and extensions in recent years. Some of the large renewed deals were GM-EDS deal (part of a multisourcing deal); 7 Eleven-Excellerate HRO contract; BAE-CSC IT contract; PepsiAmerica-ACS BPO contract; Aetna-ACS BPO contract; InBev-Logica IT contract; Barclays-Siemens BPO contract; DirecTV-HP ITO contract; NAB-Accenture FAO contract; CIBC-HP IT contract and T-Mobile-T-Systems contract.
While not many analysts were right about the fate of deals, where they got bang on, was the size of deals: Larger deals of over $500 million were limited in number, thanks to the comfort level that organizations today have with multisourcing and more sophisticated instruments to control those deals.
It was not surprising, hence that most of the renewed contracts were in the range of $50–$200 million. Some of the contracts that were in this range include the Atena-ACS deal ($56 million), Barclays-Xansa ($140 million), AMP-CSC ($146 million), The Whitebread Group-CSC ($48 million), Laurentian Bank of Canada-CGI Group ($100 million), and so on.
The terms of maximum deals were extended in the last months of the year. For instance, the deals like, Eastman Kodak Company-Nortel, Lloyds TSB-First Data International, MERSCORP-EDS, Advanta Bank-First Data International, U.S. Postal Service-HP, Dansk Supermarket-IBM, Ann Taylor-Convergys, Mutual Concept Computer Group-Nexolink, Farm Credit Canada-IBM, 7-Eleven-ExcellerateHRO, CI Financial Income Fund-RBC Dexia Investor Services, Fonterra Co-operative-EDS, U.S. Health and Human Services Department-Thomson Medstat, Duro Textiles-OneNeck IT Services, First Federal-First Data, BT-Capita and Ford-TechTeam.
Winners and Losers
For CSC, EDS and ACS, 2006 was proved immensely favorable. CSC inked several ITO contracts extensions, including the renewal of deals with Airbus North America Engineering, The Whitbread Group, Powercor-CitiPower, OneSteel, AMP, BAE Systems and Schroders. In the same time period, EDS renewed deals with customers like GM, MERSCORP, Fonterra Co-operative, Visanet, AEGON and U.S. Navy. ACS also inked many ITO and BPO agreements with European and American customers such as Aetna, PepsiAmericas, City of Riverside, First Horizon Home Loan Corporation and AmeriHealth Mercy/Keystone.
And of course, IBM also signed many renewal agreements, such as those with Dansk Supermarked, Farm Credit Canada, Symcor and UPM.
What It Means
In all aspects of outsourcing, 2006 was a year of action with lessened hype and more mature approach to outsourcing. Gone were the political rhetoric that marked 2004; gone was the fear that outsourcing, after all, may be losing out in 2005. In fact, like the single-most important thing that 2006 gave rise to —multisourcing — 2006 showed most definitely that you do not necessarily have to spend most of your time and energy in figuring out the next big thing. You should be comfortable with many ideas; many vendors; many models.
The offshore firms learned a lot to get a bigger slice; the incumbents learned new realities and put them into practice. The result was a much more mature option for the customers. Some of the renewed deals have taken into account new market realities. For the customer, it is best of both worlds.
Renewed Contracts in 2006
Month Customer Service Provider Engagement Period
(in years) Value $
(in million) Region
December Eastman Kodak Company Nortel ITO 3 NA North America
December Lloyds TSB First Data International BPO 7 NA Europe
December MERSCORP EDS BPO NA NA North America
December Advanta Bank First Data International BPO NA NA North America
December U.S. Postal Service HP ITO NA NA North America
December Dansk Supermarked IBM ITO 3 NA Europe
December Ann Taylor Convergys BPO NA NA
December Mutual Concept Computer Group Nexolink ITO NA NA Europe
December Farm Credit Canada IBM ITO 5 36 Europe
December 7-Eleven ExcellerateHRO HRO 5 (approx.) NA North America
December CI Financial Income Fund RBC Dexia Investor Services BPO 5 NA Canada
December Fonterra Co-operative EDS ITO 4 NA
December U.S. Health and Human Services Department Thomson Medstat BPO 3 14.9 North America
December Duro Textiles OneNeck IT Services ITO NA NA North America
December First Federal First Data FAO NA NA North America
December Ford TechTeam ITO 3 NA
November TD Banknorth Metavante BPO NA NA
November Siemens Business Services Barclays BPO 2 NA
November Laurentian Bank of Canada CGI Group 5 100 Canada
October Airbus North America Engineering CSC ITO 6 20 North America
October Symcor IBM ITO 3 26.6 Canada
October Farm Credit Canada ISM Canada ITO 5 32 Canada
October Infocrossing State of Missouri BPO 1 18 North America
October The Whitbread Group CSC ITO NA 48 Europe
October Powercor-CitiPower CSC ITO 5 13 Australia
October UPM IBM ITO NA NA Europe
October Marine One Acceptance ACS ITO 3 NA North America
September First Horizon Home Loan Corporation ACS BPO NA NA North America
September DirectTV HP ITO 7 500
September Perot Systems Owens & Minor ITO 5 NA
September Visanet EDS ITO and BPO 10 209
September T-Mobile T-Systems ITO NA 1.28b Europe
August Canadian Imperial Bank of Commerce (CIBC) HP ITO NA NA North America
August Cambridge City Council Serco ITO NA NA North America
August National Australia Bank Accenture BPO NA NA Australia
August OneSteel CSC ITO 37 2 Australia
July AEGON EDS ITO 5 NA Europe
July EMC Unisys ITO NA NA
June REAAL Insurance Unisys ITO NA NA Europe
June East Jefferson General Hospital Phoenix Health Systems ITO NA NA North America
June AIG Technologies Unisys ITO 3 NA North America
June AMP CSC ITO 4 146
June City of Riverside ACS ITO 1 5.52 North America
June AIG Technologies Unisys ITO NA NA
June Barclays Xansa ITO 5 140
June AmeriHealth Mercy/Keystone ACS BPO NA NA North America
May Jetstar Airways Navitaire BPO NA NA
May BAE Systems CSC ITO 5 1.9b
April PepsiAmericas ACS BPO 3 5 North America
March Iron Mountain Symphony Services ITO NA NA North America
March U.S. Navy EDS ITO NA 3b North America
March Schroders CSC ITO NA 235 Europe
January OP Bank Group TietoEnator ITO NA NA Europe
January Aetna ACS BPO 3.5 56
January Thames Water Xansa BPO 2 (approx.) NA
BPO experience: Looking beyond cost-savings
Offshore outsourcing has become a potent weapon for global companies seeking to improve their financial performance. But many companies have yet to realise the full benefits offshoring can provide – advantages that extend far beyond the cost savings that first attracted their attention. These advantages are at the foundation business process outsourcing( BPO) industry.
BPO companies operate as an extension of clients’ enterprises and run customised end-to-end processes – such as finance and accounting, insurance claims processing, and market and industry analytics – and bring industry-specific knowledge to each engagement.
Today’s outsourcing industry – which is expected to grow by 37% annually between now and 2010 – is much more specialised than just a few years ago, largely due to the deep industry expertise provided by leading BPO companies.
Management consulting firm McKinsey noted this trend in its May 2006 edition of The McKinsey Quarterly, in which consultant Vikash Daga and principal Noshir F. Kakas wrote, “As the offshoring industry matures, some providers are beginning to specialize in service lines in order to cater to new opportunities, from process reengineering to capturing previously unrecoverable revenues.”
Companies that take the initiative to choose outsourcing not only strengthen their bottom line, but also can improve process quality, increase efficiency, enhance customer service, develop compelling new products and services, and increase revenues.
Quality
Offshore BPO not only replicates processes previously carried out internally, but also performs them better by utilising highly trained senior managers and associates with industry-specific expertise.
BPO companies recruit several hundred associates each month – including individuals with industry certification or advanced degrees in travel, healthcare, management, accounting and finance. Associates are matched with assignments based on a highly effective predictive framework and provided with additional training. This approach delivers important value to clients in terms of reduced program-launch times, better allocation of resources and high-quality performance.
Offshore BPO providers also supply risk-management protocols and redundancies that often are cost-prohibitive if a company attempts to replicate them in-house. Acquiring these capabilities through BPO ensures business continuity, data security and regulatory compliance. In many cases, it also increases productivity – sometimes by as much as 60 per cent.
Efficiency
Improvements in productivity, when combined with 24x7 work capabilities, also enhance efficiency. Capitalising on the time difference, clients rely on offshore BPO partners to complete overnight projects – such as market data analysis – which enables in-house staff to keep projects moving according to schedule.
BPO companies operate as an extension of clients’ enterprises and run customised end-to-end processes – such as finance and accounting, insurance claims processing, and market and industry analytics – and bring industry-specific knowledge to each engagement.
Today’s outsourcing industry – which is expected to grow by 37% annually between now and 2010 – is much more specialised than just a few years ago, largely due to the deep industry expertise provided by leading BPO companies.
Management consulting firm McKinsey noted this trend in its May 2006 edition of The McKinsey Quarterly, in which consultant Vikash Daga and principal Noshir F. Kakas wrote, “As the offshoring industry matures, some providers are beginning to specialize in service lines in order to cater to new opportunities, from process reengineering to capturing previously unrecoverable revenues.”
Companies that take the initiative to choose outsourcing not only strengthen their bottom line, but also can improve process quality, increase efficiency, enhance customer service, develop compelling new products and services, and increase revenues.
Quality
Offshore BPO not only replicates processes previously carried out internally, but also performs them better by utilising highly trained senior managers and associates with industry-specific expertise.
BPO companies recruit several hundred associates each month – including individuals with industry certification or advanced degrees in travel, healthcare, management, accounting and finance. Associates are matched with assignments based on a highly effective predictive framework and provided with additional training. This approach delivers important value to clients in terms of reduced program-launch times, better allocation of resources and high-quality performance.
Offshore BPO providers also supply risk-management protocols and redundancies that often are cost-prohibitive if a company attempts to replicate them in-house. Acquiring these capabilities through BPO ensures business continuity, data security and regulatory compliance. In many cases, it also increases productivity – sometimes by as much as 60 per cent.
Efficiency
Improvements in productivity, when combined with 24x7 work capabilities, also enhance efficiency. Capitalising on the time difference, clients rely on offshore BPO partners to complete overnight projects – such as market data analysis – which enables in-house staff to keep projects moving according to schedule.
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