From:	Baroni Limited [Baroni-Limited@tiscali.it]
Sent:	23 May 2008 13:02
Subject:	Baroni Limited - Offshoring Newsletter' - 06/08

Gartner: Economic Slowdown Will Accelerate IT Job Offshoring
While the U.S. IT sector has shown signs of resiliency in recent months, a new report by Gartner predicts the current economic slowdown will accelerate the offshoring of IT jobs to countries such as India. In the report, Gartner notes that many U.S. companies are taking steps to speed up their offshoring programs in order to contain their labour' by sending more of their IT jobs offshore. In the worst-case scenario, the slowdown will turn into a prolonged recession that will indefinitely delay noncritical projects and lead to enhancement and innovation projects being cancelled, Gartner says.
The research firm also says that India, which has long been a staple country of IT offshoring, has been losing some of its luster as an offshore destination because of rising wages, which have recently seen annual increases between 10% to 15%. Gartner recommends that companies considering offshoring work to India either look at branching out their offshoring facilities to more countries, or that they negotiate multiyear annuity-based outsourcing contracts with vendors that let them raise rates by between 3% and 5% per year to account for employee salary increases.
But even with its increasing wages, Gartner thinks that India is still a very valuable asset for countries looking to offshore their labour, as the country is 'central to the entire IT sector today, both in terms of indigenous, India-centric service providers that have a wide-ranging impact on the IT services sector, and a vast and growing IT labour pool being trained to support a global client base.' Additionally, says study author Allie Young, employing an Indian IT worker costs about a third of what it costs to employ an American IT worker.
'India still remains the most proven country with the greatest scale and the most sophisticated service providers,' she says. 'In China, there is still a large gap in terms of language, and Latin America and Mexico do not have the scale that India has.'
However, at the individual level all the top five Indian software companies, namely, Tata Consultancy Services (TCS), Wipro, Infosys Technologies, Satyam Computer and HCL Technologies, in that order, have witnessed deceleration in business growth last year. Net sales of TCS has grown 24% in 2007-08 against 33% in 2006-07 while that of Wipro has increased 27.6% against 33.5% in the previous year. The magnitude of deceleration was even bigger for Infosys Technologies - growth rate of net sales was down from 45.6% in 2006-07 to 19% in 2007-08.
The slowing down of business growth has affected their margins too. The growth rate of net profit of all the five software majors except Satyam Computer has declined in 2007-08 compared to the previous year. Wipro has witnessed the sharpest deceleration in profit growth - down from 40.7% in 2006-07 to 7.8% in 2007-08. The growth rate of net profit of TCS has declined from 38.3% in 2006-07 to 20% last year while that of Infosys Technologies has declined from 56.3% to 18.2% during the same period.
The growth rate of total expenditure of all the five software majors in the list has declined in 2007-08 compared to 2006-07. Total expenditure of TCS has grown 26.9% in 2007-08 against 33.8%. Total expenditure of Infosys Technologies and Wipro has declined from 47.8% and 34.4% in 2006-07 to 19.7% and 32.3%, respectively, in 2007-08.
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Indian BPO vendors see larger US deals by year-end
Recession in US seems to be a mixed bag for Indian BPO vendors. BPO vendors do agree there has been a temporary slump in offshoring due to the US credit crunch, but expect the same recession-related factors to fuel increased demand for outsourcing by the end of the calendar year. Both IT and BPO companies are witnessing a spate of project delays and cancellations, especially in the financial services space, due to recession in the world’s largest economy.
Reviewing roadmaps: The uncertain environment has indeed forced client companies in the US to ‘reprioritise’ and ‘review’ their roadmap for the future, but key offshoring decisions are only being put on hold and not being relinquished altogether. However, this uncertainty is taking its toll on the Indian BPO sector, industry officials feel.
What BPO companies are facing today is the result of client situations of the past six months, said Mr Sandeep Soni, CEO and Executive Director of Spanco BPO Services. 'In the last 3-4 months, clients were figuring out how to get out of the sub-prime mess and hence outsourcing was not one of their main priorities,' said Mr Soni.
Moreover, the depth of the crisis forced many clients to review all key decisions, resulting in a temporary stoppage of outsourcing work, a senior official with a Mumbai-based BPO said on the condition of anonymity. Moreover, a lot of CEOs and CFOs have been losing jobs overseas, which has again prolonged the decision-making cycle.
BPO firms say there is indication that client companies are nearing completion of their internal evaluation process. Once these companies have sorted out the issues, they are expected to offshore more than what they did in a bid to trim losses and stay competitive, an industry analyst said. This will result in larger ticket sizes for Indian BPOs, says Mr Lokendra Tomar, Senior Vice-President, Knowledge Services, Integreon.
Already, deal visibility is much better compared with the situation in August or September last year, prompting BPO firms to believe that there will be light at the end of the tunnel by the year-end, feels Mr Soni. Mr Tomar feels that the ill effects of the US recession on the BPO space would last, at most, till September.	

 	
 Top Stories	
 	
UK Croydon Council inks £83M outsourcing deal
Croydon Council yesterday extended its outsourcing contract with IT services giant Capgemini in a deal worth £83m over five years. The Council is outsourcing its entire internal IT operations, including 4,000 desktop PCs and key finance, procurement and customer service applications, and consolidating IT departments located in several different offices across the borough.
Scottish Water Awards IT Contracts to TCS, BT, Fujitsu Services
Scottish Water has outsourced a majority of its IT infrastructure operations to three IT firms' TCS, BT, Fujitsu Services ' under eight-year contracts worth $258M. The contracts will assist Scottish Water to save approximately $16M in operating expenditure over the next 8 years. Scottish Water signed $120-million contract with Tata Consultancy Services (TCS), an Indian IT services provider. TCS will provide end-to-end IT services for consolidating Scottish Water’s existing applications and transform information management to improve IT services delivery to the business. 
ArcelorMIttal to consolidate IT outsourcing to 2 providers, Satyam ...
ArcelorMittal, a Luxembourg-headquartered global steel company, has awarded a three-year IT outsourcing contract to Indian IT companies Satyam Computer Services and MindTree Consulting. The financial terms of the contract were not disclosed. Through the contract, ArcelorMittal aims to streamline and consolidate its IT operations across Western Europe to increase cost efficiency, flexibility, and service quality.
Westpac to increase offshoring of jobs
Westpac Banking Corporation Ltd says it intends to increase 'offshoring', but denied media reports today that it planned to shift up to 3000 back-office jobs to India.
Award-winning US newspaper outsources to RP
MediaNews Group, one of the largest newspaper companies in the US with 57 dailies across 12 states, has outsourced to RP. APAC's Philippine call hubs will initially provide customer care and back-office solutions to San Jose Mercury News, Contra Costa Times and Oakland Tribune. The services will include fielding inbound customer calls, subscriber retention and delivery and billing inquiries.
US Accounting ripe for outsourcing
In April, accountants scramble to prepare client tax returns for the end-of-the-month deadline. It means long hours and searching for extra bodies to cope with the crunch. Horwath Orenstein, a 100-person chartered accounting firm in Toronto, has found a better way --outsourcing the work to India. KPMG is using its Bangalore office as a 'captive' centre, where it sends offshore work, including thousands of U.S. tax returns, which are completed with 99.5% accuracy.
PricewaterhouseCoopers awards Logica pay-as-you-go BPO contract
PricewaterhouseCoopers LLP has awarded a payroll business process outsourcing contract to Logica on a pay-as-you-go basis. The contract covers 18,000 employees and pensioners, with Logica running the service on an Oracle HCM platform using its own secure hosting environment Odis (on demand infrastructure service).
Corus hammers out £26m IT deal with Capgemini
Steel manufacturer Corus has extended its IT outsourcing deal to manage its mainframe computers with Capgemini through a number of contracts totalling £26m.	
 	
 Service Provider News	
 	
'India's IT industry to more than double revenues by 2012'
India's information technology and IT-enabled services industry will more than double in size by 2012, led by a fast-expanding domestic market, according the report by market-research firm IDC India. The industry's revenues, including those from export markets, will reach Rs 5.3 trillion (132 billion dollars) in 2012, from Rs 2.46 trillion last year.
Infosys receives contract from Conseco
Conseco, a US-based insurance provider, focused on providing financial security for the life, health, and retirement needs of middle-market and senior Americans, has awarded a five-year IT contract to Infosys Technologies, an Indian IT services provider, to provide application development and maintenance services to Conseco's key business applications.
HP renews Sara Lee deal for Technology Operations
Sara Lee, a US-based consumer-goods company, has extended its infrastructure outsourcing services agreement with Hewlett Packard (HP) for seven years. The financial terms of the contract extension were not disclosed. The contract extension entails HP to manage Sara Lee’s IT operations in 35 countries, instead of 10 under the previous contract
UK’s Logica to outsource more work to RP
Outsourcing firm Logica is looking to grow its operations in the Philippines due to ongoing cost-cutting measures in its businesses in Europe. Since setting up about a year ago, Logica's local office now employs 240 workers with plans to increase by three or four times in size, according to Neil Elias, country director for Logica Philippines.
Ness Technologies Signs $30M Contract With Ministry of Defence of Foreign Country
Ness Technologies, Inc. a global provider of information technology solutions and services, today announced that it has signed a $30M contract to provide its Integrated Command and Control System (ICCS) to a foreign country and build a national command and control centre for the purchasing country.
Novell plans to invest $100-mn in India
Novell, a provider of interoperable Linux platform, inaugurated its 200,000 sq. ft India Development Centre, the company also announced that it will invest $100M in India over the next three years. The new centre can occupy 700 employees. 
3i Infotech buys US co Regulus for $80M
3i Infotech said it has acquired Regulus Group, a US-based payment and document processing company, for nearly $100M, in a move that would increase the Indian company’s overseas presence, besides increasing its revenue. The cost of the acquisition is approximately $80M, with an additional $20M based on earn-outs linked to its performance in the next two years.
MindTree to acquire majority stake in Aztecsoft
Global IT and R&D services company MindTree Ltd has agreed to acquire 32.57% in Aztecsoft Ltd at Rs80 per share from its largest shareholder, valuing the company at around $90M. Aztecsoft, a 2,100 plus-strong software engineering services company, is a leader in the outsourced product development (OPD) and testing markets.
Convergys posts $716.4M Q1 revenues
Convergys Corp. reported $716.4M in first quarter revenues, its offshore call centre operations making up for declines in its business in the United States. Convergys employs 11,000 workers in the Philippines, located in eight delivery centres. The company will open its ninth facility in Bacolod City in Negros Occidental province by the middle of the year.	

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