Insourcing is now the buzz word in the India outsourcing industry

Weekly news updates on trends and happenings in the Indian Outsourcing Industry

Insourcing is now the buzz word in the outsourcing industry. It is now India’s turn to outsource into foreign countries like US, which are bringing their previously outsourced jobs back into their home-base. Ironically so, this is being done to achieve lower costs; the same reason for which it was outsourced to India in the first place. Amidst these major changes, Infosys and Wipro have clenched some big outsourcing and acquisition deals, respectively, this week to strengthen their outsourcing portfolio.

- Chillibreeze Business Research Team

Low cost savings may trigger reverse outsourcing

Below expected cost savings achieved by outsourcing of IT services are forcing a number of corporates in western countries to think over bringing part of their jobs back in-house, according to a new study.

The report released today by International technology research agency, Forrester, said organizations in North America and Europe plan to continue their outsourcing initiatives despite cost-savings concerns, but at the same time, many of them also plan to bring some elements of outsourcing portfolio back in-house. As per the report, 36 per cent of the firms surveyed agreed that cost savings from services were lower than expected and another 28 per cent of respondents believed that their providers are unable to respond rapidly to changing business needs.

In addition, many respondents indicate that they intend to bring some services, or some element of services, back in-house after outsourcing them, the report said. "This also suggests they no longer view outsourcing as a one time activity but as part of a continuum with significant fluidity in between phases," Martorelli said.

Source: Economic Times
6 Aug, 2007

Wipro to acquire US IT firm Infocrossing Inc for $600 mn

India's third largest IT firm Wipro today said it has agreed to acquire US-based Infocrossing Inc, a leader in data centre space and IT outsourcing, for USD 600 million (nearly Rs 2,400 crores) in its biggest takeover deal. Wipro Technologies, the global IT services arm of Wipro Ltd, has entered into a definitive agreement to acquire the NASDAQ-listed firm for USD 18.70 a share in an all cash deal.

Asked if it was the Bangalore-based company's biggest acquisition, Senapaty replied in the affirmative, and indicated it is looking for bigger buyouts, saying it is pursuing "future opportunities".

New Jersey-based Infocrossing has five data centers in the US and a total employee headcount of 900. For the 12 months ended March 31, 2007, Infocrossing had revenues of USD 232.4 million and net income of USD 9.3 million.

Wipro Technologies Chief Financial Officer Lakshminarayana said the acquisition is expected to boost the company's revenues in the infrastructure management space from the present USD 250 million to USD one billion in two-three years.

Source: The Hindu
6 Aug. 2007

Equinox sees big growth in mortgage outsourcing

With the US mortgage industry increasingly automating its processes, there is good likelihood that it will outsource the bigger chunk of the work to service providers in India, according to Equinox Corporation, which is part of i-flex.

The process requires a fair degree of analytical skills. While the automation presents a big business opportunity, there is need for considerable analytical capability to handle the different sets of loan documents. According to the Executive Vice-President, Mr. Arin Brahma, an Indian service provider faces two challenges — one, to understand and assimilate US mortgage rules, which are very different from Indian rules, and, second, the expertise to analyze available data to generate accurate reports.

To address these challenges, Equinox has developed a global framework that simplifies mortgage processing.

Mr. Brahma told Business Line that the i-flex Global Processing Model enables companies to handle the complex mortgage processing in an outsourced model. This fits well with the US companies’ quest to simplify and expedite the loan process.

Source: Hindu Business Line
5 Aug 2007

Indian call center lands in Ohio

It would be easy to imagine Reno, Ohio, as the type of place that would be hit hardest by outsourcing - a small American town losing out to the invisible hand shifting jobs to places like Bangalore and Guangzhou. Instead, outsourcing is bringing the jobs to Reno. Across the street from an Army Reserve center and next to a farm, a customer-service call center hums, its 250 workers answering phones for online travel agency Expedia. The center's owner? Indian conglomerate Tata Group.

The phenomenon has a name: "insourcing," the term experts are starting to use when foreign multinationals open offices on U.S. soil and hire Americans, at a higher price, to do the very jobs they once lured overseas. In this case the center in Reno is targeted toward companies willing to pay a premium - its workers there cost up to 40 percent more frustrating 1-800 experience.

Tata, which is based in Mumbai, established its Reno roots last year when its business services unit, SerWizSol, bought the call-center business of travel-processing firm TRX; the deal also gave it a call center in Milton, Fla. "We want to be able to say to a client, If there's a piece [of call-center operations] you want to keep in America, we can do that for you," says Ricardo Layun, head of U.S. operations for SerWizSol.

Source: Fortune
August 3 2007

Infosys Wins $250-Million Outsourcing Deal from Philips

Indian software company Infosys Technologies Ltd. said July 25 it has won a $250 million outsourcing order from Royal Philips Electronics NV to handle its back-office work relating to finance and administration.

Under the seven-year deal, Bangalore-based Infosys will take over the Dutch firm's back-office centers in India, Poland and Thailand, Infosys chief operating officer S.D. Shibulal said.

Philips currently uses the centers to process purchase orders, prepare bills and handle tasks relating to financial administration. All that work will now shift to Infosys."This is one of the largest (outsourcing deals) in the finance and administration space," Shibulal said.

Source: Indiawest.com
3 Aug 2007

Reverse outsourcing comes to play

The software industry in India and the country’s earnings from it are surging. Today, industry earnings stand at around 16 billion US dollars. Industry apex body, NASSCOM, is predicting over 15 per cent growth on a year-on-year basis. IT-enabled services (ITES), is one of the biggest employers. Allied services like human resources development, finance, and semi-skilled professions are also growing.

But there are hurdles. And clouds can be seen gathering on the horizon. Ramalinga Raju, chairman of Satyam Computers, one of the larger software companies in the country, reported a 3.9 per cent (Rs.138 crore) dent in their second quarter earnings this year and put the blame on the appreciating rupee. Infosys issued profit warnings to investors before it announced its second quarter results. Tata Consultancy Services (TCS) and Wipro are watching. Clearly, a stronger domestic currency is not going to favor companies that depend mostly on foreign currency earnings. With the increasing rupee-dollar parity, companies will have to rework their strategy.

Some companies have already made sure-footed moves towards what is called reverse offshoring. Indian companies, which are becoming major players in the international arena, are hiring aggressively in the United States, reversing the earlier trend when they always transferred Indians to work in America on temporary visas. A recent report by Forrester Research names India’s largest offshoring firm, TCS, and software giants Infosys and Wipro among them and says that some American workers who were laid off have now been re-employed in Indian outfits after receiving training in India.

Today, only 2.5 per cent of Wipro’s global workforce is non-Indian. But the company wants to boost the number to more than 10 per cent in a few years from now. Indian outsourcers say their US expansion plans predate the latest concerns over immigration and jobs. But they acknowledge the fact that the trend might ease tensions as the US Senate mulls new regulations concerning H-1B visas (temporary working papers for foreigners).

On the aspect of capability, Dr Paul Roehrig, senior analyst with Forrester Research, points out: "Global giants like Accenture and EDS lead the pack of software services. Though India has the reputation for being the hub for offshore BPOs, there are only four companies that qualify on a multiple-parameter quality assessment. They are TCS, Wipro, Infosys and, though small, HCL Technologies. Satyam is a contender."

So where have all the other companies gone? Nowhere. As of now, they are working fine. But there could be a problem sooner than later. NASSCOM realizes this.

It can be argued that every Indian BPO or offshore software services company is not at risk because of these concerns. The Wipros and the Infosys fare high by any global yardstick. Still, this does not guarantee a safe future for them. No Indian company is a software developer. All of them are software services companies. This puts our software giants way behind Microsoft, Sun, Oracle or SAP. Computing behemoths like IBM, Intel and HP also have their own proprietary software.

On the brighter side, however, is the cost factor. Like Tata Motors that developed the Indica at a lower cost, now Microsoft, Intel, HP, IBM and Oracle are all setting up their research and development (R&D) programs in India, hoping to develop software at cheaper rates than what would cost them in their home country. However, competition is just around the corner. China is doing everything it can to prepare a generation of English-speaking, cost-effective computer professionals.

Source: Offshoring Times
02 Aug 2007

Outsourcing: India in danger of being dethroned?

In 2000, when employment-screening service provider HireRight was looking for a low-cost locale for software development, the Irvine (Calif.) company turned to an unlikely destination: Estonia. The Baltic nation hasn't traditionally been thought of as a hotbed of tech talent, but it presented HireRight with a pool of well-educated, tech-savvy workers; a modern telecommunications infrastructure; and costs that were 2.5 to 3 times lower than they'd find in the US.

"It's very easy to do business in Estonia. We didn't have any roadblocks at all," says Stefano Malnati, vice-president for engineering at HireRight. The secret's out. Estonia has become a target of several other companies hoping to take operations offshore at the right price. Internet calling company Skype has set up shop in Estonia's capital city, Tallinn, home to the largest office of the eBay subsidiary.

Very competitive market

Estonia is just one of many countries learning from the example set by India, which remains the top outsourcing destination on A.T. Kearney's list, and the country is eager to carve out a piece of the bulging market for offshore outsourcing services.

Offshoring upstarts are making so many inroads, in fact, that by 2012, they'll significantly dilute India's dominance, says consultancy Gartner. The consulting firm says that by 2010 about 30 per cent of Fortune 500 enterprises will outsource to three or more countries, from less than 10 per cent today.

Lowering the bottom line

Becoming and remaining an attractive outsourcing location depends on a number of factors, including language and education skills and the reliability of a nation's telecommunications infrastructure. At the heart of most outsourcing deals, though, is lower cost.

Besides costs, considerations include the education and language skills of workers, the availability of labor, and attrition risk. Some emerging countries may not appeal to US companies as outsourcing destinations but may find markets in other parts of the world. For instance, the appeal of Pakistan's IT workforce of 90,000 people has been overshadowed by post-September 11 security concerns.

Infrastructure is key

HireRight found it easy to do business in Estonia in part because of its political and economic environment, as well as its infrastructure and cultural affinity. Building a vibrant services economy, though, often takes buy-in from the government. India, for instance, knew it needed to overcome cumbersome government policies and procedures and poor communications infrastructure to become a successful outsourcing destination.

Kenya's TEAMS

Government support is crucial, given the significant investment in communications systems and liberalization of the telecom sector. Kenya, for instance, is trying to become a destination for business process and IT outsourcing. The Kenyan government has worked in recent years to liberalize its telecom sector, which has lured more operators and helped drive telecom services prices down by 70 per cent in a short time, according to the World Bank.

Yet the country relies on satellite connections to link to the rest of the world. That makes it costly for outsourcers to do business.

Source: Rediff.com
02 August 2007

South East Asia to be the next outsourcing giant

India could be well facing a challenge as the prince of outsourcing. This might come from Philippines, Malaysia, Singapore and Thailand. This could well be a possibility, if they market Southeast Asia as a single market for IT outsourcing than competing against each other.

The industry study by XMG Inc has pointed towards the regions competitiveness in the global outsourcing market. The research shows that there are subtle but substantial differences in ASEAN countries in the levels of human capital, regulatory complain, strategic positioning and values. It was also noted that the countries in the region have developed trading capabilities which are similar in nature.

The study also mentioned outsourcing niches per country: Malaysia garners the top spot for KPO (knowledge process outsourcing) due to its highly educated and concentrated workforce, the Philippines ranks first in call center services due to the significant baseline of its English-proficient call center workforce, Indonesia ranks first in IT due to its manpower availability, and Thailand and Vietnam ranks fourth and fifth respectively for BPO readiness.
But from a geopolitical assessment, XMG said ASEAN countries still pose a high risk for businesses, particularly among multinational companies.

Only Singapore and Malaysia has been given the "green-light" for minimal risk. Thailand and Indonesia, on the other hand, have been classified as "high risk" due to terrorism and government political instability.

According to XMG, ASEAN countries have a combined has a workforce of 223 million people capable of supporting IT and IT-enabled services. That compares with 406 million in India and 768 million in China.

Source: Offshoring Times
01 Aug 2007

Made in India - The Ad Story

When Metlife Insurance came to India to shoot a television commercial (TVC) targeted at Indians living in the US, it needed an Indian wedding as its theme. Shooting the ad in India saved the company around 68 per cent of what it would have spent if the ad had been shot in a Western country.
 
This is because an ad film-maker, director of photography and crew is approximately 50-90 per cent less expensive in low-cost countries like India, says a study by SmartCube, a business research company.
 
In effect, a TVC produced end-to-end (production and post-production) in India can save 44 to 77 per cent in costs. Predictably, India has emerged as a lucrative outsourcing destination for production of TVCs.

India has also seen the outsourcing of creative services. This is best illustrated in Perfetti Italy’s Alpenliebe TVC where the creative content was conceptualized by Ogilvy India and production services awarded to Corcoise Films based in Mumbai.

Offering stiff competition to India are other low-cost countries like Brazil, Argentina and South Africa, in terms of offering rich geographic diversity with mountains, deserts, forests and beaches all within close proximity, so that producers can pass off an outdoor street shot as one from New York or Paris.
 
To attract production contracts from foreign clients, the Indian government has reportedly signed a co-production agreement with Italy, France, Germany, Singapore and the UK, simplifying the process for foreigner to shoot films (including TVCs) in India.

The bulk of the outsourced creative work today is in area of online campaigns which use skills such as computer-intensive image editing and database management in which Indian agencies excel. Agencies in India charge as little as a sixth of what their counterparts in more developed markets do for a campaign.
 
Source: Business Standard
July 30, 2007