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Review
of Year 2006: What Next in 2007?
2006 in the
outsourcing world was once again about India but increasingly also China, as the geographical
boundaries became ever more blurred.
In all aspects of outsourcing, 2006 was a year of action with
lessened hype and more mature approach to
outsourcing.
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; Pepsi
America-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. Most of the renewed contracts were
in the range of $50-$200M.
Some of the contracts that were in this range include the
Atena-ACS deal ($56M),
Barclays-Xansa ($140M), AMP-CSC ($146M), The Whitebread
Group-CSC ($48M), Laurentian
Bank of Canada-CGI Group
($100M), and so on. Fewer
high-profile outsourcing deals suggests companies
are finally getting the hang of the new 'multi-sourcing' approach of
divvying up work between a few key suppliers. The major example of this was US
giant GM, which handed out $15bn of outsourcing contracts to a range of
suppliers including Capgemini, Compuware, Covisint, EDS, HP, IBM and Indian company Wipro, as well as
reducing the length of deals from 10 years to five. In the UK Telco Vodafone also went
down the multi-sourcing route by splitting its outsourcing work between
EDS and IBM, and this is a trend we can definitely
expect to see more of in 2007.
The much-hyped
trend for in-sourcing - whereby a company brings
an outsourced IT function back in-house - failed to materialise in
2006. The only high profile
example was high-street chemist Boots bringing 100 IT jobs in-house after
renegotiating its £710m outsourcing deal with IBM.
Outsourcing
still remains a contentious and divisive issue. In response to the offshoring
backlash, this year a couple of companies opted to ditch the use of Indian
call centres and bring the work back to the UK. Powergen brought its offshore call
centre work back to “Blighty” in an attempt to improve customer service
and reduce the level of complaints, while online insurance company eSure
has said it plans to switch work from its Bangalore and Mumbai call centres to Manchester by March
2007. But for every company
making that move, dozens are going the other way - and all the major
financial services institutions are continuing to ramp up their Indian
presence. HSBC, for example,
is opening a new 2,000-seat facility in Kolkata and a software development
centre in Hyderabad.
Big global
outsourcers - Accenture, EDS,
IBM and the rest - continued
to build up their offshore capability across the globe. Accenture has built a global
network of facilities with about 35% in high-cost locations, such as the
U.S. And Britain; 20% in medium-cost locations like
Spain,
Ireland, and
Canada; and about 45%
in low-cost locations like the Philippines, India, China, and Eastern
Europe to enable them to become more competitive. During 2006, Indian companies also
started to significantly ramp up their overseas operations in places such
as China, Europe, the
UK, and the US. Thus, increasingly less and less
to differentiate the traditional IT services players and those who started
out as pure offshore outsourcers.
India remains
an IT outsourcing powerhouse, ($17.7bn in software and IT services exports
in 2005), China still lag other markets, mainly India, as a destination
for English-language-driven business process outsourcing (BPO) or shared
service centres due to language, low national birth-rate, intellectual
property and other legal issues.
The exception will be those companies who have a market strategy to
sell into China market, which will
override the former comments.
(China -$3.6bn software and IT
services exports in 2005)
Eastern
Europe
is still too far behind; however, it has come up as an attractive
alternative for clients hosting shared service centres. The regulatory environment,
intellectual property rights, shorter journey times, smaller time-zone
differences, European language skills and western
culture all contribute to the attraction. Czech Republic is leading the lot and others include
Russia (around $1bn in
2005), Ukraine,
Poland, Belarus and the
Baltic.
Governments in
Central and South America are building the requisite infrastructure,
putting in place the policies to act as attractive Near shore location for
U.S. clients. Brazil ($205.3M in 2005),
Mexico,
Argentina,
Chile and
Costa
Rica are leading the
pack.
India still has its
share of problems. India's IT
trade association, NASSCOM , warned the country faces a major skills
crisis by 2010 that will force up offshore wages and threaten India's
dominance. Despite that, a
major study predicted India's cost advantage over
other offshore locations will last for at least another 30 years. Thus, with raising salary bills,
increasing value of Rupees, Outsourcing service providers moving into 2007
must place higher priority on staying cost competitive and staying ahead
of global trends in the sourcing market if they are to remain
viable.
2007 is going
to be a fascinating year for Offshore Outsourcing and our News letter for
the fourth Year would highlight, the latest happenings, who breaks ahead
of the pack, who stumbles, who fall's, and how it all pans out. We look forward for your continued
patronage and would be glad to hear your views, to improve the content and
quality of the Newsletter
Editorial Team
- PR
Offshoring
Newsletter |
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NelsonHall
Says Bankers Are Looking to BPO in Order to Manage Channels and Risk in a
Changing Market
According to a research
conducted by NelsonHall titled, 'Core Banking BPO Industry Assessment and
Forecast', the global core banking BPO market, including both elemental
services and multi-tower contracts, is expected to increase by 45% over
the next 5 years to reach US$6.7bn by 2011. Among the key findings, the
addressing of cross channel coordination is one of the major concerns for
banks and the key services include enhanced business information, focus on
improving high cost processes, and facilitating partnerships. The banks should introduce new
products rapidly to drive revenues.
Also, there is an increase in the number of de novo banks primarily
private banks entering into the market worldwide, which are serviced by third-party providers of
operations. Moreover, the
customers are outsourcing their core banking services to improve the
execution of the processes to control risk in a complex
environment.
Cisco
shifts executives to India tech hub
Hundreds of
Silicon Valley companies - from Oracle
Corp. and Yahoo Inc.
to obscure start-ups - are expanding in
Asia's emerging economies. But top executives such as chief
information and technology officers rarely saw their own positions moved
halfway around the world - in part, because they typically command
lucrative compensation packages no matter where they're living. The move at Cisco, Silicon Valley's biggest company by market
capitalization, signals that offshoring has evolved from cost arbitrage to
strategic imperative.
Yahoo
to establish research lab in Bangalore
Yahoo, the $6bn internet
major battling various odds including competition from Google, is in the
process of starting its research lab in Bangalore. It also has centres in other
locations, including four facilities in the US, one in Spain and in Chile. The company has already initiated
the recruitment process to acquire scientists from diversified fields,
including computers, sociology, economics, and other related fields, for
the new centre.
Convergys
Purchases AOL Contact Centre
Convergys has
acquired AOL contact centre
in Albuquerque,
New Mexico, from Time
Warner. The call centre
employs about 800 employees. Convergys has already started its
operations from the facility in New Mexico.
Hillingdon signs £4M
contract with Northgate Information Solutions
The London Borough of
Hillingdon has selected Northgate Information Solutions to provide the
hosting arrangements for its major financial systems, helping to reduce
back-office administration for the council.
Sandwell
Metropolitan Borough Council goes to BT and
Liberata
Sandwell Metropolitan
Borough Council has chosen BT and Liberata as preferred bidders for a
15-year £300m contract to overhaul the authority's IT, finance, HR and
payroll and customer services.
Final contracts with the BT and Liberata venture are expected to be
signed over the next few weeks with the work beginning in April
2007
InfoVista
Awards Offshore Contract to Ness Technologies
The new R&D centre,
called InfoVista Bangalore Extended Development Centre (EDC), will
complement InfoVista's existing R&D resources located in Paris, France. Ness Technologies will be
establishing this R&D centre for InfoVista at its offshore facility in
Bangalore,
India.
SunTrust
Signs Multi-Year Contract Renewal With
CheckFree
CheckFree has won an
electronic billing and payment services deal renewal with SunTrust Banks. The two companies are working
together since 1995. In
addition, CheckFree will also work with SunTrust to provide information
about the benefits of using an electronic billing and payment system to
the bank's clients. The
service will enable the bank's retail and small business clients to
securely receive and pay their bills electronically and is available
free-of-cost.
Church's
Chicken US fast-food chain to outsource
services
US fast-food chain Church's Chicken is
planning to outsource more IT functions to Sonata Software Ltd in
India, including application
development and IT consulting. |
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Microsoft
partner Avande picks Montreal to open nearshore
facility
Avanade has announced its
decision to establish a nearshore facility in Montreal, Canada, to complement a global service
delivery network including India and the Philippines. The new facility is expected to
provide services across Canada, the US, and Europe.
The company's office in Canada is part of the Americas Delivery
Network, which includes two nodes in the US.
EDS-led
ATLAS Consortium to Deliver Additional Phase of the Defence Information
Infrastructure (Future) Contract
The
EDS-led ATLAS Consortium
today announced that the Ministry of Defence (MOD) has approved an
amendment to the Defence Information Infrastructure (Future)
(DII(F)) contract, confirming
ATLAS will deliver DII
Increment 2a. This is a
further element of the 10-year contract awarded in March 2005, to
modernize and create a single coherent MOD information
infrastructure.
Tech
Mahindra bags $1bn British Telecom deal
Tech Mahindra today
announced the signing of a five-year deal to provide BT with strategic
sourcing services. This
contract is expected to create new revenue for
Tech Mahindra in excess of US$1bn over this
period.
HCL
bags $200M UK Skandia deal
As part of
the deal, Skandia UK will outsource application
optimisation, including development, maintenance and support (across all
platforms) and remote infrastructure management to HCL. Skandia UK will retain all
customer-facing activities.
Firstsource
buys US firm BPM for $30M
Firstsource
Solutions (formerly ICICI OneSource), a business process outsourcing (BPO)
company, today acquired BPM a Delaware-based healthcare claims'
outsourcing company. The
acquisition, estimated to be around $30M according to market sources,
includes BPM's two wholly owned subsidiaries MedPlans 2000 and MedPlans
Partners.
Ness
Technologies Acquires Selesta España
Ness
Technologies, Inc., a global provider of information technology (IT)
services and solutions, today announced that it has signed a definitive
agreement to acquire Selesta España S.A.U., a privately held IT software
distribution and systems integration company based in
Spain.
Computacenter
Services acquires Digica
Computacenter
Services has acquired infrastructure management VAR Digica for £15.9M.The infrastructure and
services giant will also settle debts of £12.1m on behalf of Digica, and
claims the acquisition will enhance its datacentre, remote services and
applications management offerings.
i-flex
Solutions buys Capco arm
i-flex solutions has entered into a definitive
agreement to acquire the Singapore-based subsidiary of Capco. According to Vijay Sharma, Senior VP, i-flex Consulting,
the acquisition will complement i-flex's consulting strength in banking,
financial services, and insurance (BFSI) services sector with that of
Capco's Consulting strength in APAC.
Thus, it will help the company to offer high-end consulting
services to banks in the Asia Pacific
region. |
