From: Baroni Limited [Baroni-Limited@tiscali.it]

Sent: 05 July 2007 19:48

Subject: Baroni Limited - Offshoring Newsletter' - 19/07

Sensitivity: Confidential

Outsourcing market has entered adjustment phase, says EquaTerra

Demand for outsourcing continued to grow during the first quarter of 2007, although at a slower pace than in previous quarters and years, according to EquaTerra's 1Q07 Pulse Surveys. Eighty-eight percent of EquaTerra advisors cited increased or flat market demand in 1Q07, and 97 percent of service providers cited a similar or sequentially-up new-deal pipeline for the quarter. In addition, EquaTerra says the outsourcing market has entered an adjustment phase, and is shifting toward different types of deals -- including those for more 'knowledge-based' processes -- and smaller dollar value deals.

EquaTerra’s study methodology – which tracks quarter to quarter changes in general demand trends for all deals being considered and already in the pipeline – clearly illustrates that the outsourcing market is experiencing an adjustment phase, spurred by a maturing marketplace and a more sophisticated buyer community. The hallmarks of this reshaping include:

* a greater number of organizations are evaluating their global footprint

* organizations are increasingly utilizing a combination of shared services and outsourcing

* when using outsourcing, it is typically on a smaller scale and often with multiple 'best of breed' providers

* service providers are being forced to retool their sales and delivery models

Supporting this smaller deal/market adjustment finding are the responses from EquaTerra advisors and service providers to a survey question on deal 'scope size', which EquaTerra defines as the number of processes, users, geographies, etc. included in an outsourcing engagement. 86 percent of EquaTerra advisors cited decreased or similar deal scope, as did 63 percent of service providers. Importantly, service providers shared anecdotally with EquaTerra that while deal scope is decreasing or holding steady, their pipelines are robust for the second half of 2007.

Said Stan Lepeak, EquaTerra’s Managing Director of Research, 'Smaller deal scope can be advantageous for both buyers and providers. Buyers may feel less risk going with multiple providers, keeping the scope small or delivering some processes internally. To accommodate this changing market, service providers must adjust their sales and delivery models to accelerate time-to-deal profitability. If they are successful, it will improve their overall financial margins.

Lepeak added, 'Within our own client base we are seeing an increase in smaller deals in emerging areas including knowledge process outsourcing, pharmacovigilance, clinical data trial management, and other industry-specific areas, as well as in more newly-emerging offshore locations such as Latin America and Eastern Europe.'

Top Stories

'Telecom outsourcing spend to rise over $1 tn'
With increased competition and lower-margin products cutting into their profitability, wire line and wireless carriers will be spending nearly $1.4 trillion over the next five years on outsourced services in order to reduce costs, according to Insight's newly-released market analysis report. Until now, carriers have considered outsourcing to be little more than a tactical form of reducing the cost of acquiring ancillary services, but the lower margins associated with voice over IP is forcing them to focus less on achieving incremental cost improvements and instead use outsourcing as part of a transformational strategy, according to the report.

Contact centre outsourcers find growth in emerging vertical markets, says Datamonitor
Financial services, telcos, manufacturing and retail have long been the backbone of vertical contact centre outsourcing clients, and Datamonitor expects that this will continue to the case through 2012. Datamonitor expects contact centre agents positions (APs) associated with mature vertical markets globally to increase from 953,000 in 2007 to over 1.2 million by 2012. However, annual growth will slow from 10% to approximately 3% through this same period, as outsourcing investment by these industries matures. However, increase in business associated with energy & utilities, healthcare, the public sector and travel & tourism, which Datamonitor projects to collectively grow from an estimated 154,000 Agent position by year end 2007 to 229,000 in 2012 - a compounded annual growth rate of over 8%.

Vodafone Ireland to outsource 200 jobs to IBM
Vodafone Ireland has announced its plans to outsource about 200 jobs to IBM in line with its cost-cutting plans. About 130 of these affected employees are working on contractual terms, while about 60 of them are permanent employees of the company. This announcement from Vodafone follows from O2’s decision last week to outsource 450 of its jobs to several contenders including IBM.

Schindler Selects ADP GlobalView® for Single-Source Payroll Service Across Europe
Schindler chose ADP's single-source, multilingual, multicurrency payroll outsourcing service GlobalView® to gain a single-source payroll solution for Schindler's 16,000 employees across 14 European countries.

Eversheds has outsourced its IT systems in a £27m deal.
Computacentre will manage Eversheds' IT helpdesk, desk-side support and data centre hosting. Eversheds UK managing partner Bryan Hughes said: 'We’re a law firm, not a specialist IT provider and this, coupled with the fact that we had finite internal resources, meant that we could never be at the cutting edge of legal technology.'

Elopak chooses Unisys for worldwide IT outsourcing services
Norwegian packaging firm, Elopak has awarded a six-year, $18.6 million global information technology outsourcing (ITO) deal to Unisys Norway under which the latter will provide a wide range of IT services including support for service desk, desktop services, centralized and distributed systems management, and data centre hosting services to Elopak covering its 1,500 employees at 33 sites across 25 countries worldwide

Colombia's Avianca in $12-Million Services Deal With IBM
Through this agreement signed at the end of the first quarter, IBM will provide services including administration of the airline’s data-centre operations, end-user support services including helpdesk and onsite support, inventory administration, network management, and support for mainframe and midrange server systems.

Service Provider News

Asia-Pacific Business Process Outsourcing market to grow 16%
The Asia-Pacific's Business Process Outsourcing (BPO) market is expected to be worth 8.3 billion US dollars by the end of this year compared to 7 billion a year earlier, research agency IDC said on Monday. The market is forecast to grow at a compound annual rate of 16% until 2011 to reach 14.8 billion US dollars, IDC added.

China's SMB IT spend to hit US$28B
Small and medium-sized businesses (SMBs) in China will invest over US$28 billion to boost their IT infrastructure and applications in 2007, says AMI-Partners. China's medium-sized companies--defined as having between 100 and 999 employees--will account for the lion's share of 70 percent, and the bulk of these investments will be fuelled by the country's manufacturing sector.

SA's IT infrastructure market 'to continue healthy growth'
study by Frost & Sullivan revealed that the IT infrastructure outsourcing market in South Africa is expected to generate revenues worth about $5.6 billion in 2012 and it stood between $2.78 billion and $3.5 billion in 2006. The study also revealed that although the South African IT infrastructure outsourcing market will continue to witness a strong growth rate, there is a great need to understand the requirements of the small medium and micro enterprises (SMME) sector to benefit from the existing opportunities. In addition, the market is likely to witness significant business activities such as mergers and acquisitions over the next few years. However, the market is likely to face two significant challenges which will hamper the growth of the market. Firstly, service providers will find it difficult to recruit and retain skilled professionals due to shortage of skilled professionals in the country. Secondly, the market will be affected by the high bandwidth cost due to the lack of competition for the country's national operator.

Indian Cos looking abroad for outsourcing
India is the technology back office of the world. It might be assumed that Indian companies should have it easy in outsourcing their IT functions as global outsourcers like TCS, Infosys, Wipro and Satyam are in the neighbourhood. However, a survey by research firm Gartner has found that Indian companies aren't quite happy outsourcing to Indian technology providers. Arup Roy, Senior Research Analyst - IT, Gartner, said, 'CIOs in India have highlighted their displeasure with their service providers. They have voiced that they are getting a second rate citizen treatment from their domestic services providers.'

First Data International Extends Agreement with Laurentian Bank of Canada
First Data International, announced it has extended its agreement with Laurentian Bank of Canada. Under terms of the agreement, First Data will continue to provide payment processing services for the bank's credit card portfolios.

Fujitsu Services establish managed IT services in Northern Ireland
Outsourcing supplier Fujitsu Services has established a new managed IT services centre of excellence in Northern Ireland and created over 400 new jobs. The centre is a new build property located in Timber Quay, Londonderry, and is where the majority (328) of the jobs will be created.

First Data Renews Processing Contract with Dresdner Bank
First Data International said June 4 it has renewed its credit card processing contract with Dresdner Bank, which is part of the Allianz Group. First Data will continue to process transactions for one of the largest portfolios in the German market until at least 2012. The contract with First Data was first signed in 1999.

CSC-Led Alliance Gets Three-Year Option For National Security Agency Groundbreaker Contract
Computer Sciences Corp. (CSC) announced that the Eagle Alliance, a CSC-led joint venture, has received notification from the National Security Agency or NSA of its intent to exercise the three-year option on the Groundbreaker contract.

IBM inks $45M agreement with India's tax department
Global software major IBM has signed a five-year services agreement worth $45 million with India's Central Board of Direct Taxes (CBDT) to upgrade the latter's IT infrastructure. The agreement would allow IBM to offer integrated information technology related solutions to CBDT's three data centres in Delhi, Mumbai and Chennai and also modernise the IT network of 745 offices of the income-tax department across 510 cities in the country.

Tata Consultancy To Hire 5000 In Mexico
The rupee has appreciated 9.2% against the dollar since the beginning of the year as the central bank allowed it to rise unchecked in a bid to tame high rates of inflation. Indian software firms that see the bulk of their business come from the U.S. have voiced concerns the rupee’s appreciation is hurting profits and likely to reduce their global competitiveness. In addition, war for talent between Indian and global companies forced wages up between 12% and 15% in India last year. Wages are likely to increase an average of 14.5% this year. For starters, about 300 people will reportedly be employed at a TCS centre that opened last week in the Mexican city Guadalajara. They will take over jobs now being handled in India.

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