Subject:	Baroni Limited - Offshoring Newsletter' - 04/2009

Satyam shack-up and economic down turn continue to shake the markets, and drive a longer term shack-up of suppliers and their methodologies in an effort to drive down cost.  Baroni and partner PRGL have a comprehensive understanding of what is happening and how this will impact businesses.  Let us help you.

'Indian IT Services Outlook 2009 – Cautiously Stable'
According to this Fitch Ratings report, The IT companies will be exposed to risks of longer receivable periods and a higher proportion of receivable write-offs. This will put pressure on their operating cash flows in 2009. Customer concentration could also become an issue for those companies with large exposures to customers who are facing severe financial pressures and under threat of bankruptcy. This will add to the write-offs. In the second quarter of 2008-2009, TCS had written-off receivables from Lehman and Washington Mutual as bad debt.
Adding to the report, large IT players will gain from consolidation of vendors. Since customers continue to look at cost-cutting, this could result in an increased shift from traditional hourly billings towards a new return on capital-based price and the variable time/material contracts could be renegotiated at lower levels.
It is not just clients, but also vendors that want to optimise their costs. And the report says that this will be done as companies will increasingly look at cutting costs in the form of overheads and reduction in variable pay/annual increments. The industry has also been reducing its hiring, as well as changing the hiring profile to ensure that operating costs are in control. However, whilst costs are fixed, companies always have the option of reducing headcount, although these measures are typically implemented only in the case of a deep, sustained down cycle.
Also, there will be stiff competition amongst IT vendors to bag not just the large contracts, but also smaller ones. 'Competition even for smaller contracts has increased, as companies try to maintain utilisation levels. This will also put pressure on the billing rates,' says the report.
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BPO providers set for consolidation, report says
One quarter of the top 20 BPO (business process outsourcing) providers will cease to exist as separate entities by 2012, as a wave of consolidation sweeps the industry, a new report from Gartner has predicted.
According to the information technology research and advisory company, BPO providers will be hit by a 'competitive shakeout' in the next four years, as providers are exposed to the economic crisis, loss-making contracts and an inability to adapt to standardised delivery models.
Robert Brown, research vice president at Gartner, said BPO providers were becoming increasingly cautious in their search for the 'right contracts' to ensure profitable business for the long term.
He added: 'Companies that are overly cautious and don't compete for new, profitable contracts during the downturn will likely exit the business.
'Those that can't successfully and profitably deliver on BPO business already under management are most likely to be acquired.'
Gartner listed a number of signs that would herald the 'shakeout', including an attrition in the booked business of BPO providers – caused by exposure to the banking and finance sectors, as well as higher levels of BPO contract cancellation and in-sourcing.
The report also said that scalable BPO services provided over the internet would grow from 5% to 25% by 2012, by which time 60% of activities representing the business process consulting value chain would be delivered from offshore to multinational clients.
It also predicted a tightening of contract terms for 'innovation' and 'transformation' to include a higher degree of definition clarity and associated performance metrics by 2010.	

 	
 Top Stories	
 	
UK Government IT more likely to go offshore
Growing pressure on the government to cut its multibillion-pound IT spending bill means it is increasingly likely that major public sector contracts will be awarded to offshore IT service providers. MPs met bosses of offshore firms such as Tata Consultancy Services (TCS), HCL and Infosys to discuss ways to overcome barriers to Indian service providers bidding for public sector IT contracts.
Outsourcing Transactions by Financial Firms Drop 33%, Captive Divestitures Rise Sharply
Large financial firms signed 33% fewer transactions and divested heavily in captives during the fourth quarter of 2008, according to the Market Vista: Q4 2008 report on global outsourcing and offshoring activity by the Everest Research Institute. And for the fourth consecutive quarter, Europe accounted for a significant portion of the outsourcing market. Despite a marginal increase in market share from 39 to 41% from Q3 to Q4, transaction signings decreased by 2% and ACV dropped 41%.
U.S. firms attempt rural sourcing to tackle crisis
Perspectives of new administration in U.S. regarding with job allocation to the outsiders coupled with present dead economy climate make small firms in the U.S. to think towards rural sourcing strategy. 
DHL's back-office work will be shifted to India
DHL Global Forwarding, a part of the DHL group, is betting big on India and the potential of the manpower in the world's second-most populous country. The logistics provider is looking at outsourcing some of its back-office work to India and is running a pilot project for this
Merrill Lynch to move IT contracts from Satyam to TCS
Merrill Lynch will move many of its IT contracts from struggling Indian software firm Satyam Computer Services to rival Tata Consultancy Services, according to Indian newspaper The Economic Times.
Nationwide migrates cheque processing to Unisys
Nationwide has outsourced its cheque processing to Unisys, in a bid to cut costs and free staff time. The building society, which is the world’s largest with over 13 million customers, is making the move as part of a seven-year business process outsourcing deal it signed with Unisys in December 2007.
Volvo Treasury outsources Wall Street servicing to TradeTech Consulting
TradeTech Consulting, leading provider of services to the treasury, asset management and capital markets space, has assumed responsibility for the backbone of Volvo's treasury environment, the Wallstreet suite.
Credit Suisse to shift focus to small vendors
Credit Suisse, which is outsourcing its software application maintenance and development projects to Wipro and Cognizant, will now work with almost eight smaller, niche firms, such as Headstrong, as the Switzerland’s biggest bank seeks to mitigate risks associated with two large suppliers.	
 	
 Service Provider News	
 	
KPMG selects 'locations to watch' for next outsourcing boom
On the KPMG list destinations includes 10 locations in the Americas (Buenos Aires, Campinas, Curitiba, Calgary, Winnipeg, Santiago, Guadalajara, Queretaro, Boise, Indianapolis); 10 in Asia-Pacific (Brisbane, Changsha, Hangzhou, Ahmedabad, Jaipur, Nagpur, Penang, Davao City, Iloilo City, Ho Chi Minh City); and 11 in Europe, the Middle East and Africa (Sofia, Zagreb, Cairo, Port Louis, Belfast, Gdansk, Cluj-Napoca, Rostov-on-Don, Belgrade, Tunis and Lviv). The reasons for these locations making it on to the final KPMG list are varied but cities in the Americas should typically benefit from large labour pools, scalability, a more mature service offering, proximity to the major client base and multiple language skills. AsPac benefits from lower costs, younger populations, plenty of government incentives and the lessons learned from the numerous outsourcing centres which already dot the region. The Europe, Middle East and Africa region offers great diversity, excellent infrastructure and numerous niche specialisms. 
Gartner: Indian IT Budgets to Grow 5.5%
IT spending in India is forecast to increase by 5.5% this year, even as IT budgets are expected to be flat in North America and Europe, according to research firm Gartner. However, that's lower than the 13% growth in India last year and 16% growth in 2007, said Partha Iyengar, Gartner's head of research in India, in a conference call on Thursday with reporters.
IBM becomes largest vendor in Indian IT services mkt
IBM Global Services, business and technology services provider has emerged as the largest vendor in the IT Services market in India with a market share of 10.8%, according to a research report. Wipro and TCS-CMC ranked in the second and third place, with a market share of 8.7% and 6.1% respectively
Accenture eyes BearingPoint's Asia business: sources
Accenture, a major competitor of BearingPoint in Asia Pacific markets, has a particular interest in BearingPoint's Japanese business and assets, said the sources who declined to be identified due to the sensitive nature of the discussions. Last week, BearingPoint filed for Chapter 11 bankruptcy protection in US but has said that its overseas operations were not included in the US bankruptcy filing.
CSC Wins $59 Million Task Order From FBI to Provide Call Centre and Help Desk Services
CSC announced today that the Federal Bureau of Investigation awarded the company a task order to continue supporting the FBI National Instant Criminal Background Check System call centre. This task order has a one-year base period and four one-year options, bringing the estimated total five-year contract value to $59M.
Equens to Process SEPA Direct Debit (SDD) for SEB
Skandinaviska Enskilda Banken AB (SEB Group), a North-European financial group, will process its SEPA Direct Debit transactions with Equens.
BT wins 3-yr telepresence services contract from SWIFT
- BT said it has won a three-year managed services contract from financial messaging service provider SWIFT. Under the terms of the agreement, BT will provide its Unified Communications Video solution which connects strategic offices spread across Europe, the US and Asia.	

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