Wage inflation is spelling big trouble for the outsourcing industry in India

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

Wage inflation is spelling big trouble for the outsourcing industry in India. Projects are being outsourced outside of India to avoid the inflation risk. On a parallel note, BPO jobs are no longer the top pick of IT professionals in India. On the brighter side, Infosys has reported a healthy offshore business environment. Accenture and Wipro have signed some big outsourcing deals this week. In a lighter vein, NBC has undertaken the making of a comedy feature titled “Outsourced”.
                                                                   - Chillibreeze Business Research Team

TCS clocks 22.8% rise in Q2 net on better margins

With over 50 per cent of its revenues coming from new service areas such as infrastructure services, consulting and BPO, Tata Consultancy Services clocked a 22.8 per cent rise in net profit to beat street estimates for the second quarter ended September 2007. This was despite concerns on the US sub-prime issue as well as the appreciating rupee, said Mr. S. Mahalingam, Chief Financial Officer, TCS, at a news conference here on Monday.

In fact, margins improved by 77 basis points from the first quarter, inclusive of a negative 30 basis point impact due to the appreciating rupee. A combination of cost management, greater offshoring (positive impact of 36 basis points), higher pricing and productivity (109 bps) as well foreign exchange hedging (79 bps) helped TCS report an operating profit margin at 24.85 per cent, said Mr. Mahalingam.

Pricing on new contracts improved by between five per cent and eight per cent, while renewed orders fetched 3-5 per cent higher rates.

15 October 2007
Source: The Business Line

Inflation forcing outsourcers to outsource

Wage inflation in India has caused many its companies to begun outsourcing business clients that were initially outsourced to them from other nations.

The Guardian reported Saturday that many Indian companies typically associated with outsourcing have started to outsource those jobs to other countries in an attempt to avoid wage inflation and a lack of qualified workers in India.

The largest Indian technology firm, Tata Consultancy Services, has been forced to begin operating call centers in Brazil due to the challenging business climate in its native land, the British newspaper said. The firm recently signed a $200 million deal with the Dutch bank, ABN Amro, to offer technology services to its customers through its new Brazilian branch.

The re-exportation of such jobs represents the ability of Indian firms to focus on the individual parts of a complex task in different global locations without damaging the final assembled product, The Guardian said.

13 October 2007
Source: www.topix.com

Hess Corporation and IBM Sign Innovation-Led $73 Million Outsourcing Services Agreement

IBM today announced a $73 million five and one-half-year outsourcing agreement to provide Hess Corporation (NYSE:HES) with global information technology (IT) infrastructure services.

Hess Corporation, with headquarters in New York, is a global integrated energy company engaged in the exploration, production, purchase, transportation and sale of crude oil and natural gas, as well as the production and sale of refined petroleum products. By selecting IBM, Hess will leverage IBM's global delivery network, deep understanding of the petroleum industry and extensive research capabilities.

Under the contract, IBM will provide global IT infrastructure services, including: round-the-clock monitoring, management and early problem detection and resolution for Hess' servers and global network; service desk services; centralized remote desk-side management services; asset tracking services; and end user support services. IBM will update Hess Corporation's current server environment with the latest IBM System x and System p servers, which will enable Hess to reduce costs for the overall IT infrastructure, improve service delivery, implement best-in-class processes, and achieve early resolution of IT infrastructure issues.

12 October 2007
Source: www.ibm.com

Infosys offshore biz continues to be healthy’

Indicating that the environment for offshore business continues to remain healthy, Infosys said on Thursday that demand continues to be robust and there were no signs of any slowdown in the US, the largest IT market.

Infosys COO, Mr. Shibulal said, has been signing new deals at 3-4 per cent above its average billing rates and renewing the existing ones at rates that are 2-3 per cent higher.

Further, the company is currently chasing a pipeline of 12-14 deals worth over a billion dollar. Commenting on the margin outlook, Mr. V. Balakrishnan, Chief Financial Officer, said the operating margins for the current year may fall by 50-100 basis points. A strong rupee impacted Infosys’ margins by 50 basis points during the September quarter.

Due to an appreciating rupee, which has risen by more than 12 per cent this year, Infosys projected a loss of Rs 2,000 crore in revenues and Rs 250 crore in profits for the current financial year. “We have already lost about Rs 500 crore each in the first two quarters and are still able to maintain margins in a narrow band,” Mr. Balakrishnan said.
The cash and cash equivalents stood at Rs 7,319 crore and the company incurred a capital expenditure of Rs 403 crore during the quarter.

11 October 2007
Source: The Business Line

Fujitsu sets up $10-m centre in Noida

IT and communication solutions company, Fujitsu Consulting India Ltd, has announced setting up an offshore development centre in Noida at an investment of $10 million with a capacity to house 1,200 employees.

This would be the fourth centre of Fujitsu in India after Pune, Delhi and Bangalore. Further, it also plans to add one more centre in the next one year, said the company in a statement. The new centre would enable the company to support software application development and sales and service to cater to markets in the US, Europe, Japan and other countries in Asia Pacific.

8 October 2007
Source: The Business Line

Eight Signs You're Not Ready for Outsourcing

Outsourcing some or all of your company's IT functions can jump-start your business, push it to the next level or just get your systems under control. But for outsourcing to work, you'll have to manage it carefully. Read the eight signs below before taking the plunge.

You haven't done due diligence on potential vendors: Hurry cautions that you should ask about whether the vendor you contract with will be outsourcing the work to another party--and if so, you want the details on that third party. That includes background checks on the employees who will actually be doing the work for you, and what the company's turnover rate is, especially in a market like India where job-jumping is the norm.

You don't have any plans for managing the relationship on an ongoing basis: Many IT service providers--especially the larger ones whose business models justify a year's worth of a team's work courting a $100 million deal--have yet to figure out the best sales and selling models to make much smaller deals profitable. With a very high cost of sales to the small and midsize business market, one solution some have is to keep account management overhead low.

You don't have your own house in order: IT is broken at your company and you're hoping an outsourcer will come on board and make everything all better. Wrong. Now you'll just get to pay someone else to run your flawed or ill-defined processes and inefficient systems

You can't compromise on customization: For very small infrastructure-related projects, suppliers generally cannot provide any kind of customization

You can't wait--literally--to get to market: Start-ups that need to get their applications developed so they can get to market fast may benefit from an outsourcing or offshoring relationship, but they'll have to choose carefully.

Your organizational culture is more about confrontation than collaboration: Even the smoothest outsourcing relationship is going to have a problem now and then. Some companies always will take the view that it's the vendor's fault, and either they fix things or they're gone, rather than work together to figure out how both sides can address the issue.

You won't be ready to move forward aggressively on your plans: You can't just plan for outsourcing--you've got to be ready to move forward fast, with an aggressive time line that lets your company realize its stated intentions and keeps them from moving to the back-burner.

Your expectations about cost-savings are unrealistic: Of course, outsourcing is about saving money, but not necessarily right away. For one thing, suppliers may not be able to price their services as aggressively for smaller contracts as they do for bigger deals. For another, the process of delivering IT and recovering its costs is somewhat informal in some organizations, including large companies. When organizations don't know what their true IT cost base is to start with, they can be in for a shock when a price tag is attached to those services.

11 October 2007
Source: The Forbes

Accenture Signs Three-Year Application Outsourcing Agreement with WorldSpace Satellite Radio

Accenture will provide WorldSpace, a global satellite radio company, with application development and maintenance services under a three-year outsourcing contract. Financial terms were not disclosed.

Accenture will help WorldSpace implement application development strategies and maintenance services designed to help the company get its products and services to market quickly, increase operational efficiency, reduce operating costs and enhance revenue opportunities.

Under terms of the contact, Accenture will be supporting all Oracle Communications Billing and Revenue Management services and SAP applications.

11 October 2007
Source: Topix.com

Nokia Siemens transferring R&D group to Wipro

Nokia Siemens Networks will transfer its research and development (R&D) team, working on radio access technologies, to Indian outsourcer Wipro. Under an agreement between the two companies, staff from the radio access R&D group, currently based in Berlin, will be transferred to Wipro by December, said Ramesh Emani, president of product engineering solutions at Wipro. Wipro hopes all 58 staff, currently employed at the Berlin center, will transfer to the company.

Wipro is already doing outsourced development for Nokia Siemens' various R&D groups. After the transfer is complete, the staff in Berlin will join Wipro's own staff already working in India for Nokia Siemens on radio access products, Emani said. Wipro will not be making any payment to Nokia Siemens for the transfer of the staff, Emani said.

The transfer of staff from Nokia Siemens gives Wipro access to experts in the area of radio access equipment such as wireless base stations, according to Emani. Nokia Siemens will in turn have the benefit of a supplier who can ramp up the number of staff working on its projects in India.

11 October 2007
Source: Infoworld.com

Comedy feature "Outsourced" to NBC

NBC is heading east with "Outsourced," an India-set comedy based on the newly released indie film of the same name. The story centers on a customer service manager in Seattle whose department is outsourced to India, and he goes there to train his replacement. The project explores the clash of the Western and Indian cultures, and chronicles the manager's romance with a local woman. NBC ordered a pilot script.

8 October 2007
Source: www.yahoo.com

BPOs no longer career choice for Indian youths

Careers in BPOs and call centers are no longer hot options for Indian youth and these sectors will face the toughest manpower challenge yet in the next two years, says a study. The outsourcing industry is already facing an attrition rate of 25-30 percent as youths are shifting to more promising areas such as hospitality, aviation and retail, says the Associated Chambers of Commerce and Industry of India (Assocham). In two years, it will face a shortage of 30-40 percent, the industry lobby said, in a study entitled 'Urban Youths' New Emerging Choices for Career Making,' that was released Sunday.

8 October 2007
Source: India eNews