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Is Offshoring Sustainable? -
Joint Study by Bernstein Research & Everest Research
Results
In analysis of the world's major IT
services providers, the study grouped the major
outsourcing suppliers into three categories based on
levels of offshore adoption: India players, such as
Wipro, Infosys, and Cognizant (whose employees are for
the most part located offshore); aggressive offshore
adopters, such as Sapient, Perot, and ACS (early
adopters of offshore labor); and traditional players,
such as IBM Global Services, EDS, BearingPoint,
Accenture, and CSC (which have a small, though growing,
percent of their work staffed offshore).
The report found that IT service
providers who are primarily based in India achieve
higher margins. In 2004 net margins of the top-six
Indian suppliers averaged 22 percent, compared to only 4
percent for six major traditional suppliers. India-based
service providers also benefit from higher free cash
flows. The top-six India players combined generated
nearly $1 billion in free cash flow in the past year.
'This translates into higher profit margins for those
Indian companies,' says Joe Fernandes, managing director
for Everest Research Institute. 'The actually profit
margins are fundamentally higher, 21 percent for the
Indian pure players, versus 4 percent for the
traditional companies.'
Report findings also indicate a 30
percent growth in offshore outsourcing demand over the
next three years. 'Those who downplay the size of the
offshore market and dub it a commodity business are
really missing the boat,' says Rod Bourgeois, senior
research analyst, computer services and IT consulting,
Bernstein Research. 'Offshoring is having an enormous
impact on industry economics. This will only continue as
offshore demand over the next several years is supported
by a strengthening value proposition and multiple
industry trends.' The report also found a direct
correlation between those IT services that are offshored
and company growth. The top India suppliers are growing
revenues at an annual rate of nearly 40 percent, while
the major traditional suppliers at only 3 percent.
'Those IT service providers that offshore their services
are growing quicker than traditional players,' Fernandes
says.
Those trends include the rebuilding
of large-scale outsourcing contracts and a shrinking
supply of IT talent onshore. These, in turn, will prompt
buyers to look offshore for talent and new contract
structures, according to the findings. Additionally, the
ability of companies to offshore more services, such as
BPO and IT infrastructure, is making offshoring more
popular than ever. 'As more and more companies rebundle
their work, they're beginning to move many services to
best-of-breed companies,' Fernandes says. 'Previously,
companies with big outsourcing contracts and lots of
suppliers are now taking pieces of those outsourcing
contracts and giving it to specialist firms. Many of
these specialist firms are offshore.'
Despite the generally negative
perception of offshoring, study contends offshoring,
more than any other factor, is driving growth and
profitability among the large IT outsourcing-services
providers.
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Still
a lot of growing up to do for the finance
sector
'What all these large institutions are
looking at is to identify where deploying the right
practices can generate the maximum return for their
businesses. The insurance sector, for example, is
looking at a range of blended-service options, mixing
local services with offshore outsourcing and outsourcing
from lower risk near-shore areas such as Eastern Europe
and Portugal,'
Dixons
to outsource IT in £30m cost-cutting
drive
Dixons Group is in 'advanced'
negotiations with an IT supplier - believed to be
LogicaCMG - over plans to outsource its UK IT operations
as part of a company-wide £30m cost-cutting drive.
The
Bank of New York to Provide Commission Recapture
Services to QIC
The Bank of New York, a
global leader in securities services, has been appointed
by QIC (previously known as Queensland Investment
Corporation) to provide commission recapture services
for its clients through BNY Brokerage Inc., a wholly
owned subsidiary of the Bank and a member of BNY
Securities Group
FirstMerit
Investment Securities Announces Partnership for
Outsourcing Brokerage Services
FirstMerit
Corporation announced today that its brokerage unit has
formed a strategic alliance with INVEST Financial
Corporation to manage its brokerage-dealer operations
effective July 1, 2005.
Société
Générale signs with Efunds for card processing
deal
According to the agreement, eFunds will
offer each subsidiary full third-party processing
services across the transaction lifecycle, including ATM
management, merchant acquiring, back-office services and
card management.
Department
of Transportation Awards Financial Management Line of
Business Center of Excellence Support
Contract
SRA will work with ESC to create a
strategic plan for the Center of Excellence, develop a
framework for executing projects, and implement
enterprise resource planning solutions using the Oracle
Federal financials enterprise software suite. The SRA
team includes IBM; Spectrum Solutions Group, Inc.; and
Vigotsky & Associates, L.L.C.
DuPont
Set To Hand CSC $1.9 Billion Outsourcing
Extension
Under the proposed seven-year
extension, CSC would continue to provide DuPont with
worldwide IT infrastructure and selected applications
support through 2014. DuPont's current contract with CSC
expires in 2007. The companies hope to have a definitive
extension in place by the fourth quarter
Ciba
Selects Watson Wyatt for Accounting
Services
Ciba Specialty Chemicals has
appointed Watson Wyatt to manage its U.K. pensions
administration and accounting functions, replacing KPMG,
reports Global Pensions
Radiology
Work Shifts to Overnight, Overseas
... to see
patients, which makes that specialty uniquely suited for
outsourcing. ... looked into sending some of the
overburdened radiology department's work offshore. ...
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Big
joint venture in China Microsoft, others to provide
global outsourcing services.
The joint
venture, announced Thursday by Microsoft Chief Executive
Officer Steve Ballmer along with representatives from
Tata and various Chinese government-owned entities, will
provide technology outsourcing services both to the
global market and domestically in China, beginning in
2006, the group said.
Offshoring
drives up Xansa profits
IT outsourcer Xansa
has posted a near-30% increase in operating profits for
the year ending 30 April, as it continues to expand its
Indian outsourcing operation ...
Xoriant
to invest $12m for expansion
Xoriant
Corporation, a service provider, plans to expand Indian
operations with investments of about $10-12 million and
induction of 1,000 people in three locations.
India
Plans database of IT workers
Nasscom - the
National Association of Software and Services Companies
representing India's IT services industry is planning to
create a national registry of all IT workers in a bid to
allay security concerns.
IBM
drives off with €1.8bn Fiat BPO deal
Troubled
car maker Fiat has awarded IBM Global Services a
nine-year £1.24bn IT services contract.
BT
and IBM win €400m contract from InBev
Inbev,
the global brewer that owns Stella Artois and Beck’s,
said on Thursday it would outsource its information
technology infrastructure to IBM and BT Group to cut
costs.
ClearView
outsources Compliance IT
Infrastructure
ClearView Strategic Partners
Inc. Canadian company focused on compliance, corporate
governance and employee engagement solutions for
organizations.today announced it has selected Fusepoint
Managed Services Inc., to manage all mission-critical IT
infrastructure and applications related to the company's
compliance, corporate governance and employee engagement
solutions.
Ness
Technologies to Acquire Slovakia's Delta Electronic
Services a.s.
Ness Technologies, Inc. , a
global provider of IT solutions and services, today
announced that it has signed a definitive agreement to
acquire Delta Electronic Services a.s. , a leading
provider of IT services and solutions in Slovakia.
Company's Third Acquisition in Central and Eastern
Europe in 2005 - Further Strengthens Position in The
Region |
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