From:	Baroni Limited [Baroni-Limited@tiscali.it]
Sent:	12 November 2008 14:39
Subject:	Baroni Limited - Offshoring Newsletter' - 08/08

Baroni Limited:
Economic challenges now dictate a review of best practices and an emphasis on cost control, not just for share-holder value and competitive advantage, but also weathering the storm.  Baroni, with its partners can assist you, regardless of size in looking at ways of doing this and seeing it through to conclusion.

Whilst others dither, get distracted and hesitate, the opportunity to capitalize on the low Rupee and the hunger for business in the BPO market, now may be the time to capitalize.

Please contact us for more information.

Short Term Deals makes Indian IT companies Vulnerable.
For IT companies, there seems to be a slowdown on the revenue front. Sequential revenue growth in the last three quarters of top Indian IT companies such as Infosys, Wipro, Satyam, HCL Tech has been erratic. After hitting growth rates of 5-9% for January-March quarter, revenues have grown at a moderate pace of 2-5% in the latest July-September quarter, an analysis shows.
Cognizant has been the lone warrior as it has maintained a steady rate, moving in the narrow band of 6-7% aided by surprising and above-average growth in the troubled financial services segment.
'Results for services mark a new low point. Appetite for offshore services remains well below trend, and we remain cautious on the space, with both TCS and Wipro,' Sarah Friar of Goldman Sachs Global Investment Research said. She estimates revenue growth of Indian IT services to fall to 12% in 2009, from 29% in 2008.
The $50-bn IT services industry, given the prevalence of short-term, time & material (T&M) contracts on their order books, has lots to overcome than merely a global slowdown. T&M contracts are those for which fees is based on time taken and manpower used. Overall, the industry has about 70% of contracts as short-term businesses (typically, three to six months’ duration) compared to the fixed price, longer-term contracts.
Companies such as HCL Technologies, Infosys Technologies, Wipro Technologies, Satyam Computer Systems have over 60% of their revenue coming from T&M billing contracts and in smaller IT companies this percentage is higher. In good times, over 90% contracts resulted in repeat business.
Now with uncertainty in the market, the high percentage of short-term, T&M contracts could prove to be an Achilles’ heel for the IT players.
When asked about the dominance of T&M contracts among Indian IT companies, NASSCOM president Som Mittal told ET, 'It’s true that the industry is not doing too many large, fixed-price contracts. But that’s because in early years, the IT industry had to prove itself and hence got only the short-term contracts. Now with better domain expertise, the shift to long-term, fixed-price contracts will happen.’’
However, it won’t be easy to make that shift in the current market situation with customers tightening new IT spends. The T&M contracts are more sensitive to external business environment changes when compared to fixed price, long-term contracts, which tend to be more stable.
'The prevalence of the short-term contracts is a big problem, but also a significant opportunity. We are trying to move to more fixed-price contracts as it offers more certainty in contract execution and revenue,’’ says HCL Technologies CEO Vineet Nayar. For HCL, the percentage of fixed-price contracts has gone up to about 38 in Q2 2008 compared to 32 in the previous quarter.
The problem for Indian IT majors is more acute as historically there have been only short term, T&M contracts coming their way. And with the industry growing at a fast clip over the last several years, companies did not bother too much about the kind of contracts as long as business was coming in.
The long-term, fixed-price contracts would typically go to the large MNC service providers such as IBM, Accenture or HP. 'Till now, the industry has been focussed on quarter-on-quarter targets and has done well as is evident from lot of repeat business. This helped establish a track record and comfort level with clients'.
But now, companies are keen to shift to fixed-price, long-terms contracts as it’s more sticky and helps take out the uncertainty in business, particularly during present turbulent times,’’ says PricewaterhouseCoopers (PwC) partner & head of consulting practice Ambarish Dasgupta.
T&M contracts typically span three months to six months, while fixed-term contracts are for longer duration. T&M offers flexibility, but is more risky. Hence, companies prefer fixed-price contracts. For instance, Bharti Airtel’s over $1-bn outsourcing arrangement for IT with IBM is a long-term contract and so was the ABN Amro’s $2.2-bn deal shared among IBM, TCS, Infosys and others.
However, most contracts with Indian IT majors are of a shorter duration, leading to more unpredictability in future earnings. 'It’s a clients’ call on the kind of contracts. Though we are pursuing more fixed price, long-term deals as part of the de-risk strategy,’’ says Satyam Computer Systems CFO Srivinas Vadlamani.
Infosys sees this shift to fixed-price contracts as part of the larger effort to de-link revenue growth from manpower growth and move up the value chain. 'T&M or fixed price is a way of billing clients. Lot of the contracts that we have are long term, with over 99% repeat business. We always try to increase the fixed-price contracts, but eventually it depends on the comfort level of the client,’’ says Infosys CFO V Balakrishnan.
The company has increased its fixed-price contracts to 34.1% of revenue in Q2, 2008, up from 27.8% in the same quarter last year. Wipro Technologies too has increased it to 31.6% from 26.6% a year back. The challenge will be to accelerate this shift, to build in more stability in their pricing models and businesses.
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 Top Stories	
 	
US to cut IT spend by 5% in 2009: Goldman Sachs
With less than two months to go in this year and companies busy finalising their IT budgets, a global survey by investment bank Goldman Sachs has found that budgets could further decline by 5% in 2009 compared with 2008. The drop is the largest decline since the collapse of the dotcom bubble. Tech spending had declined by a whopping 9% in the US in 2002 after dotcoms went bust.
US$104 billion IT consulting industry to witness increased offshoring, according to Everest/Bernstein joint research
Demand drivers have changed, enabling growth to buck economic trends, says report. The IT consulting market, estimated at US$104 billion, has shifted its value proposition to meet growing needs of vertical industry buyers seeking solutions for business changes, regulatory issues, access to new technologies, and heightened needs for specialized talent, according to the study,
Recession in US is good news for LPOs in India
At least one section of industry isn’t unhappy about the meltdown. The recession in the US is good news for the $200-250 million legal process outsourcing (LPO) industry in India. Companies like Pangea3, UnitedLex and CPA Global consider risk management and compliance a high growth area. UnitedLex’ risk team in India has seen a five-fold growth in the last six months. This is prompting them to hire at a time when other sectors are either freezing recruitments or are firing.
Citi sells India back office arm to TCS for $505 million
Citi has announced to sell its stake in the Citigroup Global Services Limited (CGSL) - India based captive business processing outsourcing (BPO) unit - to Tata Consultancy Services (TCS) for $505 million (Rs 2400 crore approximately).
Océ signs outsourcing deal with Atos
Digital document management provider Océ has agreed to outsource the IT support for its European sales companies to Atos Origin. The deal came into force on November 1 and will last for seven years.
LSE and SunGard sign data back-up deal
The London School of Economics and Political Science (LSE) and SunGard Availability Services have signed a five-year contract to provide the university with business continuity services.
BUPA Outsources Core Business Apps Support
As part of its multi-vendor outsourcing strategy, BUPA employs a small number of third party contractors for its technical needs. Recently, it has signed a three-year contract with Patni Computer Systems. Patni will provide managed service for BUPA’s core business applications. The Patni team will include 40 technical specialists based in the UK and India and the contract is a three-year agreement.
Stora Enso inks deal with Capgemini to outsource financial transaction processing
Paper maker Stora Enso said in a statement Wednesday it had signed a deal with Capgemini to outsource most of its financial transaction processing operations to Capgemini	
 	
 Service Provider News	
 	
India, home to six of the world's top eight outsourcing hubs
Bangalore, Chennai, Delhi-NCR, Hyderabad, Mumbai and Pune are the six Indian cities in the list of top eight outsourcing cities of the world, according to a study by Global Services, the media platform for global IT outsourcing and BPO industry and Tholons, a global investment advisory firm. The other two cities are Dublin of Ireland and Mataki city, the Philippines, the survey adds. But China dominates the list of emerging cities for global outsourcing with Shanghai and Beijing leading the list along with Cebu City from The Philippines.
NASSCOM team to meet Obama officials in March
A high-profile NASSCOM delegation will be travelling to the US in March 2009 to lobby officials of the Obama administration, influencers (Senators et al) and key think tanks to ensure that no nasty surprises greet Indian tech majors on the outsourcing issue. With the US alone accounting for over 60% of India’s software exports, it must be understood that NASSCOM does not have much room for manoeuvre on this score.
IT cos rejig hedging plans as rupee slides
The downtrend in the rupee against the dollar (the rupee depreciated by as much as 8.5% against the dollar) has forced some of the top IT firms to rework their hedging strategies. To make things worse, the rupee is expected to decline further. While banks like UBS and Calyon see the rupee falling to 50 against the dollar in the near term, Barclays sees it at 53-levels. 'Though some banks have predicted that the rupee would slump to 57-58 levels, a conservative estimate for it would be 52-53 levels by December 2008 end', said Abheek Baruah, chief economist, HDFC Bank.
Wipro, Cognizant make strides, but rivals wallow
Two out of India’s top six software exporters have shown significant revenue growth during the last few quarters in the most important industry vertical for the IT services business. Wipro and Cognizant have seen revenue from the key banking, financial services and insurance (BFSI) vertical rise by about a fifth between Oct-Dec 2007 and July-Sept 2008. For TCS, Infosys, Satyam and HCL, the comparison show that receipts have almost stagnated. 
Steria secures £31m council contract
Steria has announced that it has signed an agreement with Welwyn Hatfield Borough Council to provide ICT, council tax, benefits, customer contact centre, reception and switchboard services in a deal worth £31m over the next 12 years.
Computer Sciences Receives $192 Million Army Contract
U.S. Army has awarded the CSC a task order to provide command, control, communications, computers, intelligence, surveillance and reconnaissance regional support centre support services. The task order has a one-year base period and two one-year options, bringing the estimated total three-year task order value to $192 million.
Tech Mahindra to open call centre in UK
Tech Mahindra, which is working in collaboration for BT (British Telecom), will recruit about 500 IT and call centre staff over five years for the centre at the Viking business park in Jarrow. 
Wipro BPO to set up business shared services centre in Curitiba, Brazil
Wipro BPO, is setting up a Shared Services centre for AmBev, the largest brewery company in Latin America with leading brands like Brahma, Becks, Stella and Antarctica. 
CSC Plans China Centres
Computer Sciences Corp. said it plans to open new customer service centres in China with an eye to increasing its footprint in Asia. The delivery centre, slated to open in spring 2009, will initially house about 200 employees. CSC said it expects that number to increase to about 500 within three years. The company plans to begin service delivery from a nearby temporary location starting in November.	

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