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Research agency Gartner estimates that in 2002 the total BPO business worldwide was worth US$110 billion and of this amount only US$1.2 billion, or just 1 per cent, was sent offshore to other countries. By 2007, predicts Gartner, the total BPO business will grow to US$173 billion of which US$24 billion or about 14 per cent will be sent to other countries.
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| NEWSLINE |
| 04.29.04 (9:42 pm) [edit] |
HSBC Aggressive
HSBC to double Indian software staff to 1,000
[b]By Andy McCue, Special to CNETAsia[/b]
[i]HSBC is to double the number of staff at its Indian software centre to 1,000 within the next 12 months but the bank has admitted it is also looking at alternative offshore locations. [/i]
According to reports in India's business newspapers, HSBC will increase the headcount at the software development centre in Pune from 500 to 1,000.
The bank has been one of the early adopters of the offshore model, opting for the captive route of moving to low-cost countries but keeping the facilities in-house rather than hand it over to a third-party service provider. HSBC also has business process outsourcing (BPO) centers in Bangalore and Hyderabad.
HSBC has publicly stated its intention to outsource 4,000 jobs to cheaper locations over the next two years and the bank admits it is also looking at Sri Lanka and the Philippines in addition to India. HSBC was contacted but no-one was immediately available for comment.
Separately a survey of bank customers by the Lloyds TSB Union (LTU) this week revealed that 45 per cent of them would change bank if Lloyds TSB continued with plans to offshore call centre jobs. However, 40 per cent also said it wasn't an issue.
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Newer Destinations
IT Outsourcing - New Zealand the new India?
[b]Amanda Akien - www.prosperity4.com[/b]
For many IT contractors ‘outsourcing’ normally conjures up images of Bangalore or Mumbai. However New Zealand is becoming the new destination for British businesses wanting to outsource major IT projects.
New Zealand is unique as the country is not competing head on with the low cost structures of India, China and Eastern Europe. Independent analysts including Gartner and AT Kearney have already identified the island in the Pacific as one of the world’s most attractive centres for offshore IT development work.
Gartner positions New Zealand among the “Up and Coming” outsourcing destinations. New Zealand is ranked in line with China, Ireland and Northern Ireland, and ahead of South Africa, Russia and Poland.
Consultancy firm A.T.Kearney in a recent review of offshore location attractiveness assessed New Zealand as sixth in the world for people skills and availability and fourth in respect of the business environment. The country was rated third for English speaking developed countries and overall, New Zealand ranked 12th among the 25 top outsourcing destinations.
The rise in IT outsourcing to New Zealand is driven by a combination of factors including strong government support for the developing technology sector and a highly educated IT workforce.
The country has the digital broadband communications infrastructure that makes international offshore IT projects feasible. For example, five submarine cable networks including the 240-gigabyte Southern Cross link connect the country globally.
Tony O’Brien, Senior Trade Commissioner UK and Europe, New Zealand Trade and Enterprise commented: “Our IT specialists have had to become more multi-skilled and multi-talented than in other countries. This has enabled New Zealand technology companies to take different approaches to how software is developed and tailored.”
Outsource2NewZealand an IT vendor coalition launched this week in London to promote the country as an offshore destination for the global software outsourcing market
As Jim O’Neill, Executive Director, ITANZ explained: “The UK is a natural first market for Outsource2NewZealand. The UK IT services market is worth US$47 billion with outsourcing estimated at approximately US$3 billion and expected to grow at a rate of 40 per cent a year. Already skilled in working with international clients, New Zealand IT service companies are well placed to win a greater share of this market. We are well known here for our creativity and proven ability to collaborate with clients to complete major IT projects to challenging time-frames and requirements”.
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| NEWSLINE |
| 04.28.04 (9:24 pm) [edit] |
OPINION MATTERS
The Benefits of Offshore Outsourcing
[i]By Michael J. Miller [/i]
[b]www.pcmag.com[/b]
As more companies transfer programming and call- center jobs offshore, the topic of offshore outsourcing is raging throughout the information technology industry. I understand the frustration of workers whose jobs have moved and of customers who fail to get their technical-support questions answered. But the backlash may be overblown. One of the latest studies indicates that the trend may actually be creating more jobs. At least that's the conclusion of a recent study by Global Insight, sponsored by the Information Technology Association of America (ITAA).
Given our global economy, the globalization of the IT industry is inevitable. Most big IT companies do much of their business overseas and naturally want to have some of their employees in those markets. Lower wages in some countries are also a huge incentive to move operations, especially since high-speed communication removes many of the barriers to dealing with U.S.-based colleagues and customers.
I think that some of the criticism of offshore outsourcing is misplaced. According to the Global Insight study, from 1998 through 2003 offshore IT software and services spending increased from $2.5 billion to $10 billion; the figure could reach $31 billion by 2008. It also estimates that as of 2003 nearly 104,000 IT software and services jobs were displaced. The same study says that 372,000 IT jobs have been lost in this country since 2000, accounting for about 10 percent of the total number of such jobs in the U.S. The main reasons for the loss: the dot-com bust, the recession, and the growth in productivity.
Interestingly, Global Insight says that rather than reducing the number of jobs in the U.S., offshoring is lowering costs for everyone and actually creating jobs, thanks to a more efficient economy. It says that about 194,000 new jobs—both IT and non-IT—were created in 2003 thanks to offshore IT outsourcing, and by 2008 the number will reach over 589,000.
According to a study by Gartner, fewer than 5 percent of U.S. IT jobs have moved offshore. But analysts predict that by 2010 25 percent will be in developing countries. They urge companies to proceed carefully, as such moves could result in the loss of future talent, intellectual assets, and organizational performance.
Of course, the creation of new jobs isn't much consolation for people who have lost their jobs. Still, moving some jobs offshore seems inevitable. There is no good alternative.
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OUTCRY
IBM staff in offshore outsourcing protest
[i]By Robert Jaques and Ian Lynch[/i]
[b]www.vnunet.com[/b]
IBM employees have staged a rally at the computer giant's annual general meeting to protest against the offshore outsourcing of US-based jobs.
Chanting "Offshore the CEO," staff and former employees demonstrated against IBM's increased focus on outsourcing and cost cutting.
The demonstration was organised by Alliance@IBM and the Communications Workers of America unions, which also submitted proposals on corporate governance to be discussed at the company meeting.
"IBM has admitted that thousands of jobs are being sent offshore to India, China, Brazil and other countries, with plans to increase this outsourcing," said Lee Conrad, national coordinator for Alliance@IBM, in a statement.
"This raises serious concerns about the long-term job prospects for workers in the US, and also about the need to ensure that customers have the quality service they expect to receive from IBM."
The Alliance asked for a review of the company's executive pay policies to see whether they create an undue incentive to make "short-sighted decisions" such as an over-reliance on offshore employees.
But addressing shareholders, IBM chairman and chief executive Sam Palmisano said globalisation was an important issue, and promised $25m to help those affected to retrain and find jobs with the firm's partners.
"I think most people recognise that we can't simply lock into place current jobs, skills, businesses - or, for that matter, nations," he told shareholders.
"On the other hand, the impact of these economic shifts on individuals is a very real issue. At IBM, we believe we have to prepare our people to do the jobs that will be needed in the future."
Palmisano added that the firm spent $750m per annum on staff training, with $200m of that fund specifically aimed at "hot" new areas of expertise, such as high-value services, business integration, open standards and pervasive and wireless technologies.
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NEW PLAYERS
Offshore outsourcing in Canada to take off dramatically
www.pwc.com
Offshore outsourcing in Canada has lagged the US but a new report from PricewaterhouseCoopers LLP has found that the industry is about to dramatically take off. [i]A Fine Balance: The Impact of Offshore IT Services on Canada’s IT Landscape[/i] addresses the trend of IT work being sent offshore from Canada to low cost centres in emerging economies, as well as Canada’s role as a nearshore provider of IT services for US-based companies.
A [i]Fine Balance [/i]found that the rise in the Canadian dollar, increased US media awareness, offshore investment in Canada by Indian and global players and early success with trial programs have all had a profound impact on offshore outsourcing. Canada is experiencing a fundamental shift.
The study found that Canada can retain and build its advantages as a “nearshore” outsourcing provider to US, and even European firms. “Our overall labour costs put Canada midway between the US and India, and we have other advantages like geographic proximity to the US market,” said Robert Scott, PwC partner and leader of the Canadian IT Advisory practice. “But a lot more focus is needed if Canada’s nearshore IT services industry is to keep pace with job losses in other areas. We found that if no action is taken at least 75,000 of Canada’s current 550,000 IT jobs could migrate offshore by 2010, but with right actions, IT jobs could increase by 165,000.”
The core of the opportunity for job creation is for Canada to become a good resource for IT in a global context rather than a North American context. If Canada can win three per cent of the global IT market share by 2010 that would mean an increase of 200,000 jobs.
Another big area of opportunity for Canadians involves the development of specialized technologies like animation, bioinformatics, content management, retail banking, digital media distribution, health informatics and business process outsourcing.
The research found that cost is not the only reason companies send activities offshore, yet respondents acknowledged that without cost savings other factors did not matter. Providers stated that the average cost savings for Canadian firms who sent work to India were in the range of 30 to 50%, whereas buyers reported savings between 20 and 30%.
PwC's study was based on interviews with vendors, service providers of IT services and large Canadian corporate buyers.
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| Issue: DATA SAFETY !! |
| 04.27.04 (9:32 pm) [edit] |
Offshore Outsourcing: Is Your Data Safe?
Forget the Outsourcing Issue! US seems helpless to curb the massive outflow of white-collared & non-white-collared jobs to some emerging Asian giants. The stiffle US face is their sensitive data is also becoming public - especially to India. Is their a way out ??
When financial services executives and chief information officers sit down to discuss the topic of offshore outsourcing, the emotionally charged debate often centers on sending high-skilled IT jobs to low-wage countries such as India, China and Russia. But the second issue being discussed is security - data-security risks and privacy concerns, and how these issues can be mitigated.
The financial industry is used to taking precautions to mitigate the risk of hackers and intruders stealing data and unauthorized personnel viewing sensitive data within corporate headquarters. But when applications are developed overseas and code is developed through interfaces with the host company's network, Wall Street firms have less control of their data and, to a large extent, are relying on another company's security measures and data-access policies.
The most obvious risks revolve around the access, storage and transfer of data. And compliance with regulations and U.S. privacy laws - such as Gramm-Leach-Bliley, which requires financial-services companies to protect the privacy of customer data and prohibits them from sharing it with other entities without permission - are driving firms' efforts to secure their data.
But is offshore outsourcing any more prone to data-security risks than domestic outsourcing? Are the fears over data security being overblown by the media because of the political backlash against lost jobs? "[U.S. companies] have been outsourcing for 20 years and no one was screaming [that] there were security issues," says Rita Terdiman, vice president and research director for Gartner, the technology research and consulting firm in Stamford, Conn.
Sources say financial-industry regulators are concerned with all third-party outsourcing arrangements, period. In 2002, the Office of the Comptroller of the Currency issued risk-management guidance for banks that use foreign-based third-party service providers. Though there hasn't been any specific regulatory action from the securities-industry regulators, Sarbanes-Oxley does require CEOs and CFOs to certify the integrity of their financial data, and even security officers and CIOs may be asked to be signatories. "The intense focus on data security and who's accessing what information has made this a board-level issue and not just a CIO issue," says John Plansky, the Boston-based chief executive of securities solutions for offshore service provider Wipro Technologies.
To limit exposure, the projects securities firms are sending offshore are mainly related to application development; rarely are live applications hosted on third-party service providers' networks. Firms are keeping their data servers in the U.S., not in India. And when it comes to testing applications in the production environment, they are not sending real data - names, addresses and Social Security numbers are fake. "Any time any data is shipped to India for testing, it is all mock data - no real clients, no real positions," says Charles Cortese, managing director in the technology department at Lehman Brothers, which outsourced application development projects to Wipro Technologies and TCS last year.
Jonathan Gossels, president of SystemsEXPERTS Corporation, a security and network management consultancy based in Sudbury, Mass., warns that a number of things can go wrong when outsourcing application development. One of the dangers is that a programmer could insert hidden code through a back door, he explains. That could allow someone to access that at a later date and gain control over the application itself or over the data that the application interacts with, Gossels adds.
"What's scary about that is, in many circumstances, it's undetectable," he adds. "So the danger is real, [but] the solution is not to stop outsourcing, because the economics are driving firms to do it," says Gossels. When it's snowing, the airlines don't stop flying, he suggests. They fly the planes further apart or they de-ice the wings. For the financial-services industry, the solution is to put in place what the Street calls "compensating controls," explains Gossels. This refers to the money that financial firms are going to have to spend, and the processes and the tools they'll need to implement "to make sure that when the software comes back in-house, it only does what it's supposed to do," says Gossels.
Whose Law Is It Anyway?
Data-security concerns aren't limited to application-development projects. Since the large Indian offshore-outsourcing companies have expertise in the financial markets and may be running hundreds of applications for numerous financial firms, another concern is that an employee could be paid to show a firm's data to its competitors. "You're talking about deliberate espionage. That's what I'm more concerned about," says one Wall Street executive, who suggests that an employee could be paid as much as $50,000 to share a firm's data with a competitor. Though an offender would be prosecuted if that were to happen in the United States, says the Wall Street source, he's not sure such deterrents are in place overseas.
"When dealing with offshore outsourcing, you are now dealing with a separate set of laws," says Greg Silberman, a partner in the technology, intellectual property and outsourcing group at New York-based Kaye Scholer. "Anyone moving information to another country [has to ask], 'Do they have the same privacy protections and guarantees, and are privacy laws actionable in that country?'" he says.
Many sources, however, claim the risks of outsourcing to an offshore third party are no different than those a firm faces when it outsources development to a U.S.-based third party or a consultant like IBM or EDS. "It's the company's responsibility to make sure the environment is secured. [It's] no different than the environment we secure today as part of our business," says William Morgan, executive vice president and chief information officer at the Philadelphia Stock Exchange.
In 2000, Morgan hired Cognizant, a Teaneck, N.J.-based IT services provider with operations in India, to convert the exchange's back-office mainframe application to decimal trading. Since most of the coding was done during the middle of the night here in the U.S. - daytime in India - the project required giving Cognizant access to a portion of PHLX's Cobol mainframe applications, as well as to test data.
But Morgan says the security concerns weren't unusual. From a data-security perspective, companies already have connections all over the world as a part of normal business, he says. "So the fact that you're using a network to have people access your system - and it happens to be a project you're developing over those interfaces - to me, it isn't any different than when you are conducting your [everyday] business."
"The reality is, it's not a new threat," says Lehman's Cortese. The fact that it's an Indian doing [the work] versus an American is an artificial distinction," he says, adding that a third of Lehman's U.S. IT department is Asian. "Also, you have to trust the nature of our relationship with these vendors," says Cortese. "It's more important for the Indian companies for a breach not to happen than for the Americans," he says, explaining that such a security failure would destroy an offshore service provider's business.
Though many CIOs and other experts admit that data security and privacy risks are the same regardless of whether the provider is based domestically or overseas, most agree that the risks increase when the data is being stored or transferred across national boundaries. "There's unique twists and turns - the local laws, the local customs, the local facilities, the local country risks," says Zachary Thuman, executive director of the Financial Services Technology Consortium (FSTC), which launched an initiative in March to establish minimum required practices for offshore outsourcing.
"All of these [risks] pertain just as well when we outsource in the U.S., but we are very familiar with them. The challenge is: How do we manage these risks consistently no matter whether it was China, India, Philippines, Malaysia or Israel?" says Thuman. The purpose of the FSTC's initiative is to pool resources and share costs by creating standards for country-risk assessment and monitoring, employee background checks, and, potentially, a certification program for offshore professionals.
Ashok Vemur, vice president of banking and capital markets for offshore service provider Infosys, says India does have laws to protect against security breaches. "It's a question of how quickly it can be practiced and implemented," he says. Vemur says all the contracts that Infosys enters into are under the legal jurisdiction of the country the client works in - not Indian law. "All of our contracts are signed under U.S. laws. We mitigate the risk right away," he adds.
To ensure further that data is not breached, Wall Street firms tend to use the top offshore providers in India, including Infosys, Wipro and TCS, which have stringent data security policies and procedures in place. "If you have a vendor with really good security, then the only real difference at the end of the day may be that the people may be governed by Indian law," says Gartner's Terdiman. As a result, she adds, "If I have a vendor with people in a different legal system and that person breaches the data, I can't prosecute them because the laws in India are different."
Due Diligence and Compliance
For now, the onus is on financial-services institutions to maintain data security. To make sure they are in compliance with U.S. regulations, capital markets firms are adopting best practices when it comes to evaluating offshore providers and investigating their security practices. As part of their due diligence, securities firms are asking about providers' physical security practices and password controls and requiring offshore outsourcers to conduct employee background checks. They can also ask to see a copy of the outsourcer's audit or send their own auditor to inspect the provider's facility and security practices.
According to Mark Lutchen, partner and head of the IT business risk-management practice at PricewaterhouseCoopers, one of the recent trends is an increase in focus on the SAS 70 review, which is a review of the provider's operations that is done by a reputable third-party. In addition to being audited, several of the leading Indian outsourcing companies, including Infosys, Cognizant and Wipro, are certified to the BS799 standard, an international standard from the British Standards Institute that covers network security, infrastructure security, disaster recovery, connectivity, data migration and data transfer.
"In today's world, with Sarbanes-Oxley, this is becoming a demand," says Lutchen. "If I'm a CFO signing on the dotted line that my systems are being outsourced, I'm signing that everything is under control. How can I say that if someone hasn't looked at it," he says.
Restricting access is one of the techniques that the Philadelphia Stock Exchange utilized when it hired Cognizant in 2000. "We decided up front with Cognizant who would have access on their side, and who would not," says PHLX's Morgan. It was not just anybody on their side that could log in. "They were controlled through selected individuals on their side who they had to name and tell us who they were," says Morgan. PHLX also maintained a time-of-day limitation on their access. "They would have access through a certain period in the evening to early in the morning and then that access would be cut off," says Morgan.
To safeguard the live applications that were in production, PHLX partitioned the mainframe, creating a test zone so that Cognizant employees could not go near the production environment. PHLX also required Cognizant to appoint a single known administrator, who was the only person authorized on their side to request changes to their user accounts. On the telecommunications front, Morgan set up a dedicated communications line between Cognizant and the regional stock exchange. "They weren't using public-domain communications access or the Internet or anything like that to access our system," says Morgan. "From a data-security standpoint, that's a better way to configure it," adds the CIO.
Lehman used offshore development center (ODC) guidelines, created by the offshore vendors, to set up contracts and working relationships with Wipro and TCS. Following the guidelines, the investment bank physically walled off an area within TCS and Wipro, which is dedicated to Lehman. Security-card access is needed to enter the area. Lehman also stationed a full-time Lehman employee in the offshore location to oversee the facility and sent Lehman's head of physical security and IT security to review the facilities multiple times.
Going above and beyond the ODC model, Lehman installed its own infrastructure, including its own PCs, servers, networking equipment and software, says Cortese. Under the ODC model, no application servers are located in India - only print and file-servers are located there. "When anyone in India accesses our servers in our data centers in Europe or the U.S., they have restricted and monitored access," Cortese points out.
Protecting Their Customers
Meanwhile, the leading Indian outsourcing companies also go to extreme lengths to protect their customers' data. All three companies - Infosys, Wipro and Cognizant - say they make sure that only the right people working on a project have access to the data. If a client says that a particular project is sensitive, Infosys, for instance, uses biometric security, including retina scans and palm reading, to identify employees against their records, says Infosys' Vemur. "We work with multiple players in the same industry. It's very important that data segregation and security is kept - that's something our clients look for," he adds.
In addition to performing employee background checks and using magnetic access-cards, the outsourcing companies also monitor access electronically and search bags when people enter and exit the facilities. Wipro uses video security to make sure "nobody from any competitor or any outside customer is allowed inside," says Ruchir Asthana, head of delivery for Wipro's securities industry vertical, based in Bangalore. Additionally, all removable media, such as floppy drives or CD-ROM drives, "where you can copy some data and take it out," is removed from the workstations inside the ODC, says Asthana.
On the network security front, Infosys creates demilitarized zones that separate the incoming and outgoing communication lines and make sure that data is not commingled on the networks. Since application-development projects constitute the bulk of Infosys' work, "We do not work on live data," says Vemur - it's mocked up or scrubbed data, he says. When they are working on trading platforms, the real-time trading positions are not being housed in India. "You are simulating environments, you are taking historic data, you are scrubbing them and you are removing confidential [information]," he says.
According to Rengs Srinivasa, head of capital markets at Cognizant, the company masks the Social Security number, the address and the investment information, so when the offshore developers look at the data, it is scrambled. But the more stringent the security, the higher the cost, he adds.
Cortese says that when Lehman factors in the cost of putting in security procedures and doing this remotely in India, "It still produces a 40 percent savings for us." So what's the bottom line on data-security risk in offshore outsourcing? "The risks are real, but they are manageable," Cortese says.
[b]Source[/b]: WALL STREET & TECHNOLOGY ONLINE
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| CONFERENCE CALL |
| 04.27.04 (9:17 pm) [edit] |
Conference Call on Offshore Outsourcing and the Future of the U.S. High-Tech Innovation Economy
Reporters and editors researching or writing stories on the U.S. economy, trade or offshore outsourcing are invited to take part in a conference call tentatively slated for 2 p.m. Eastern Daylight Time on Wednesday, May 5, with Electronic Industries Alliance (EIA) President Dave McCurdy. On that date, EIA, the leading high-tech trade
association in the U.S., will unveil a six-part Policy Playbook addressing the future of the U.S. High-Tech Innovation Economy.
Offshore outsourcing has become a major topic in 2004, but two other issues need even more attention and action from policymakers: 1) the future of innovation in the U.S., and 2) global competitiveness for the U.S. high-
tech industry in the face of new economic rivalries from potential "innovation nations" such as China and India. What is the future of innovation in the U.S.? What investments are necessary if the U.S. is to improve its innovation infrastructure by developing and implementing a national technology strategy and vision? EIA will discuss these questions during the conference call, as well as six technology industry-related issues: international business and trade, visa and immigration policy, workforce assistance and training, the U.S. business environment, K-12 math and science education, and research and development. The goal of the playbook is to present a comprehensive plan for
the U.S. so that the nation maintains its competitive edge on innovation and ensures that "the next big thing" in high-tech and electronics originates in the U.S., again and again and again.
SOURCE: Electronic Industries Alliance
Web Site: www.eiae.org
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| Offshore Trend Set to Continue |
| 04.27.04 (3:39 am) [edit] |
[b]Offshore outsourcing[/b] will continue its rapid growth despite the political backlash in the US, according to two new surveys.
A study by Ernst & Young claimed that the Indian outsourcing industry grew 50% to $3.6bn in the 12 months to the end of March 2004, and that a similar rate of growth would continue this year. In a more cautionary tone, the report warned that future growth could be held back by the problem of increased staff attrition and absenteeism which has led to employers having to hire surplus staff.
Another study by US-based consulting firm Cutting Edge Information also stated that the high growth in demand for outsourcing would continue. The report claimed that financial services firms in the US plan to transfer 500,000 jobs offshore over the next five years, which works out at 8% of those currently employed in the whole industry.
[u][b]Computer Business Review Online[/b][/u]
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| Third of outsourcing deals have offshore and BPO components! |
| 04.26.04 (9:41 pm) [edit] |
[i][b]Trend to continue despite slow start to 2004, according to new report…[/b][/i]
Offshoring and business-process outsourcing (BPO) continue to make up an increasing proportion of outsourcing deals despite a slow start to 2004 in both value and numbers of deals signed.
The figures, based on a quarterly index of worldwide private-sector deals advised on by outsourcing consultancy TPI, show that 51 of the transactions were signed globally in the first quarter of the year, at a total value of €9.9bn. The figure is below the last eight-quarter average of €13.5bn but still above first quarter averages for the last two years.
Although actual BPO - involving the outsourcing of a complete business function such as HR - remains some way behind industry hype, with traditional IT outsourcing accounting for 80 per cent of deals, TPI claims that the pipeline of potential deals indicates the rate of adoption will increase during 2004.
The first quarter of 2004 saw the fourth consecutive quarter of increasing global BPO contract award values, with 11 deals totalling €2.8bn in value representing almost 30 per cent of all outsourcing deals so far – higher than the usual 80/20 split. These BPO deals were focused on CRM, HR and finance and accounting. Europe did not follow this trend, with just one BPO contract award over €40m so far this year. But Duncan Aitchison, managing director at TPI, said in the report that this is not a trend.
"Looking ahead, we believe these numbers will recover as our pipeline indicates that some sizeable BPO transactions should take place in Europe in 2004," he said.
The 'big six' still dominate BPO and Accenture is some way ahead of rivals, with involvement in 91 per cent of total BPO deal value.
Globally, offshore outsourcing continues to gain momentum with 50 per cent of the 16 contracts that TPI has advised on so far this year containing offshore components. This compares to 48 per cent last year. But Europe again lags behind with only 20 per cent of TPI-advised outsourcing transactions in the region since 2003 having any offshore element. Again, this is likely to change, according to Aitchison.
"As European companies are starting to implement global sourcing strategies, and to consider options in India, the Far East and Eastern Europe, it is likely that we will see more activity around offshoring in the coming quarters," he said.
Offshoring is also expected to pick up again in the US once political issues subside after the November presidential election, according to the report.
Aitchison said the European market will remain buoyant but said trends such as BPO and offshoring are changing the nature of the outsourcing market.
"The outsourcing market is changing," he said. "Deal volumes have stayed the same but total deal value has declined, partially because of BPO and offshore influences, and partially because of the separation of capital responsibilities in service contracts."
[b]Andy McCue [/b]- www.silicon.com
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| Ernst & Young predict 50% growth for Indian outsourcing business |
| 04.26.04 (2:11 am) [edit] |
[i]India's booming outsourcing industry should post 50 per cent revenue growth for a second straight year but rapid steps to retain employees are vital to ensuring future steady expansion, a report by global consultants Ernst and Young says.[/i]
The outsourcing industry grew by an estimated 50 per cent in the financial year ending March 31, 2004, which would translate into revenues of US$3.6 billion, the report entitled Offshore Outsourcing Survey said.
The industry should grow at a similar blistering pace this year as the sector is in expansion mode, Ernst and Young forecast. 'Growth is expected to exceed 50 per cent in 2004-05 as well,' said Ernst and Young partner Ranjan Biswas, one of the report's authors.
The expansion has been driven by existing customers increasing orders thanks to cost and productivity gains which have also attracted new clients.
There has been a rush by western companies, especially those in the US, to shift work to India to take advantage of its vast pool of less expensive, educated English-speaking workers.
But Mr Biswas said there were clouds hanging over the industry, which employed around 200,000 people.
The huge growth potential could be hampered by rising staff attrition and absenteeism that is due in part to the monotonous nature of some of the work, he said.
'At any point in time these outsourcing units have around 10-12 per cent of staff absent,' Mr Biswas said.
Employers are forced to keep extra employees on their payroll to fill in for absentee workers and those who quit suddenly and this increases costs, he said.
The industry also faces challenges from leading global service providers setting up delivery centres in India. Expansion in India by US companies like Accenture Ltd, which pay fatter salaries than domestic firms, has driven wage costs higher and caused some Indian companies to lose staff.
'Even 200 rupees (S$8) make a difference for a teenager as that much extra money means that many more movies or coffees. And if a competing vendor offers him that, he would take it and go,' Mr Biswas said.
Outsourcing companies need to implement strategies to retain staff given the stiff competition emerging in the industry, he said.
'Hiring slightly older professionals would be good as the present lot' is largely made up of young people, he said. 'Also providing higher bonuses and incentives, offering faster career progression and providing job rotation could be some of the strategies to retain employees.'
Many companies, he said, were already contemplating such actions.
Mr Biswas said a recent fall in the US dollar had also squeezed earnings margins, 'making it tough to be above water if costs aren't controlled'.
The rupee has appreciated by over 3 per cent since January against the dollar, affecting earnings of software companies.
He also said companies should target clients who operate during India's daytime hours. This means seeking customers in Europe and Asia.
'Vendors must focus on filling up their seats during daytime as most are working only at night to meet client requirements of the west,' he said.
The move to outsource work has created huge public uproar in the west, especially in the United States during what is a presidential election year.
But Mr Biswas said he did not believe there was much foundation to complaints that India and other countries were taking jobs.
'Indian vendors are employing just around 200,000 people while there are four to five million working in the US in such jobs.'
[b]Source 'AFP'[/b]
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| Forsee: Only 'handfuls' outsourced |
| 04.25.04 (10:14 pm) [edit] |
[b]The Business Journal[/b]
"Serving Metropolitan Kansas City"
By [i]Charlie Anderson, Staff Writer[/i]
Sprint Corp. said that only 22 of its employees lost jobs during the overhaul of its information technology department, which included sending work overseas through vendors.
In outsourcing deals with IBM Corp., EDS Corp. and Convergys Corp., no more than 900 employees saw their jobs change, spokeswoman Jennifer Bosshardt said.
The majority of those employees either took jobs with the outside vendors or accepted a new position within Sprint, she said, leaving 22 people jobless.
"We're talking about a couple of handfuls, really, of employees that have been impacted," Sprint CEO Gary Forsee said April 20 during a question-and-answer session with reporters.
Outsourcing has become a hot-button issue of late, both on the presidential campaign trail and in statehouses. In Missouri, Gov. Bob Holden quietly signed an executive order last month banning the state from awarding contracts to vendors that intended to send the work offshore.
Sprint has had to battle poster-child status on the issue ever since The Business Journal reported on an internal Sprint memo in February 2003 that said the company would send work offshore.
Its notoriety on the issue extended to a report on TV's "60 Minutes" that named Sprint as a user of cheaper labor overseas.
The Communications Workers of America, the primary union for Sprint employees, has lobbied the company to analyze the damage offshoring does to the Sprint brand and its quality of service.
Union officials said Forsee's comments on the jobs lost were disingenuous.
Tony Daley, a CWA economist, said it is more accurate to say 900 people lost their jobs because even if rehired by a vendor, those employees probably saw their benefits and salary suffer.
"They're playing around with the numbers," Daley said, calling IBM's strategy "a business model based on extremely low labor costs."
But the union may have its own problems with numbers. A CWA Web site (techsunite.org) used to track offshoring job losses claims that Sprint sent 3,000 jobs overseas and that 600 jobs were cut.
Its source is an article that appeared in March 2003 in The Business Journal, which cited sources during the early stages of Sprint's outsourcing bid process.
The article indicated that Sprint sought to outsource -- not offshore --work done by 3,000 of its existing employees and contractors, according to documents. It also quoted Sprint Vice President Carol Bussing, who said the ultimate decision probably would affect 500 to 600 workers.
Sprint finalized the deal six months later with IBM and EDS and said it would affect "hundreds."
Daley said the CWA would revise the Web site.
Forsee used Sprint's annual shareholders meeting to personally address the issue.
"There is no answer that I can give to satisfy employees who have lost their jobs," he said. "This is a topic that is obviously very politically charged, has a lot of emotion, because it does get down to the employee level. I understand that, and I appreciate that.
"But I also want you to understand that we have an obligation to keep a balance every day between our employees, our shareholders and our customers."
After Forsee's statements, CWA Vice President Jimmy Gurganas said the union will continue to fight offshoring.
"It is an issue that will not go away," Gurganas said.
Write to Charlie Anderson clanderson@bizjournals.com.
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| States take a hard look at outsourcing |
| 04.22.04 (9:30 pm) [edit] |
Worries about outsourcing have state lawmakers proposing bills by the dozen and governors issuing orders aimed at keeping jobs that are tied to state government at home.
But none of the proposed bans have become law, with election-year concerns over unemployment colliding with fears that free trade could be damaged by government interference.
Critics say the measures are often veiled political attacks on President Bush that have little chance of passage because they would be economically damaging in the long run. Supporters so far have made little progress, even though 35 states are considering measures that would sharply restrict or ban outsourcing.
Meanwhile, governors in Michigan, Minnesota and North Carolina have issued orders on their own to try to rein in the practice, though they've shied away from hard and fast rules.
And last month, North Carolina legislators agreed to spend $1.2 million to bring 34 jobs back from Mumbai, India, to rural North Carolina to handle phone calls regarding child support, part of a $25-million contract with Arizona-based eFunds Corp.
Their action followed an order from North Carolina Gov. Mike Easley, a Democrat, who told state agencies to re-examine contracts with private companies for outsourcing.
"We took a look at this (question) - can we be competitive and bring those jobs back?" said Dan Gerlach, Easley's senior fiscal adviser. "Does it make sense both to taxpayers and to workers in North Carolina?"
Last year, Indiana's state government canceled a $15-million contract with an Indian consulting firm that would handle some calls in India. The bid has been reopened.
Michigan Gov. Jennifer Granholm, a Democrat, and Minnesota's GOP Gov. Tim Pawlenty both issued orders last month requiring state agencies to encourage and pursue contracts with companies that keep jobs in their state and in the United States.
"When it makes sense, we should do all we can to direct (the state's) buying power to serve American and Minnesota workers," Pawlenty said when he issued his directive.
Much of the legislation in state capitals from California to Alabama to Connecticut would seek to prohibit state contracts with companies that rely on overseas workers; others seek to discourage the practice through tax credits.
"Lawmakers are starting to get more and more of an understanding of how outsourcing is affecting everyone," said California state Sen. Liz Figueroa, a Democrat who wants a ban on state contracts that rely on offshore labor.
She also seeks to make larger companies report any outsourcing, and also to limit medical or financial information being processed overseas.
Figueroa remains convinced her ban will become law: "Some pieces of legislation, it just takes time for people to understand and comprehend. That's the way it should be."
Critics say the arguments are misguided, because the free flow of trade ends up creating more American jobs. Supporters are just aiming to score political points, they say.
"Some of the Democrats nationally have gotten together to play this in each state so it becomes a presidential issue," said Connecticut's budget director, Marc Ryan. "The punitive approach is foolish. You're cutting off your nose to spite your face."
A Detroit business group argued more obstacles will only drive companies away from doing state work and force up prices; a Republican state legislator from Colorado helped kill a proposal in committee.
"I just really believe that trade barriers are economically counterproductive," said Colorado state Senate President John Andrews. "In the short run, you are burdening the taxpayers of the state with higher costs."
Anti-outsourcing legislation could violate the Constitution and international trade agreements, according to a new study by the National Foundation for American Policy, a nonpartisan group that works on trade.
The approach so far, at least by the governors, echoes the in-state preferences of the "Buy America" efforts that gained support in the 1970s amid worries of Japanese economic dominance, said John Thomasian, director of the National Governors Association Center for Best Practices.
"That's a reasonable middle ground," Thomasian said. "Most governors are really loathe to interfere with free trade, even while they anguish over job losses."
The dilemma isn't easily resolved. Kansas lawmakers were outraged when they learned that Kansans' calls about food stamps would be handled in India, and wrote a ban into this year's budget.
Then they learned the state would pay $640,000 more, or a 38 percent increase, for the calling center contract. Budget negotiators scrapped the provision.
[b]By ROBERT TANNER, Associated Press National Writer[/b]
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| 'Outsourcing may create 317,000 new jobs by 2008' |
| 04.22.04 (1:55 am) [edit] |
Amidst intensified campaign against outsourcing of jobs to countries like India , a study by Information Technology Association of America has found that offshoring is of "great benefit" to the United States .
"The US economy has much to gain from global outsourcing and an environment of free trade, open markets and robust competition. The economic benefits include job creation, higher wages, higher GDP growth, contained inflation, expanded exports," the Virginia-based organisation said.
While outsourcing has displaced and will continue to oust workers in IT software and services, increased economic activity will create wide range of jobs - both IT and non-IT. In future, US economy will operate more efficiently and create more than twice the number of jobs displaced, with high wages.
Given the benefits that accompany offshore spending by US firms, ITAA said, "it would be unwise to enact protectionist legislation or regulations as a result of political pressures being created by this economic transition."
Meanwhile, the spending for global sourcing of computer software and services is expected to grow at a compound annual rate of almost 26 per cent, increasing from approximately $10 billion in 2003 to $31 billion in 2008. During the same period, total savings from the use of offshore resources are estimated to grow from $6.7 billion to $20.9 billion.
The cost savings and use of offshore resources lower inflation, increase productivity and lower interest rates. This boosts business and consumer spending and increases economic activity, it said.
The incremental economic activity that follows offshore IT outsourcing created over 90,000 net new jobs as of 2003 and is expected to create 317,000 net new jobs by 2008.
The impact will vary for different industries. The major industry groups that are expected to gain a significant number of incremental jobs over the next five years include education and health services, transportation and utilities, construction, wholesale trade, financial services, professional and business services, and manufacturing.
Demand for US exports is expected to increase due to relatively lower prices of US-produced goods and services and higher incomes in the offshore outsourcing destinations. Real exports were $2.3 billion higher in 2003 and are expected to be $9 billion higher by 2008.
The benefits of free trade -- lower costs, higher labour productivity and more efficient production -- induce businesses to leverage the offshore resources.
Meanwhile, ITAA cautioned that the US government and industry should be responsive to the needs of displaced IT workers, as well as the need to continue encouraging the next generation of workers to enter the IT field.
[b]Press Trust of India[/b]
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| HSBC expands outsourcing to India |
| 04.21.04 (8:54 pm) [edit] |
MUMBAI: Analytical work done at HSBC’s offices in London, Paris, New York, Hong Kong, Tokyo and Mexico will now be anchored in India, at a new centre which is most likely to be set up in Mumbai.
THE centre will be up and operational this year itself.
THE London-headquartered bank proposes to “insource” jobs from other parts of the world and provide analytical support for the group’s research department as well as for its investment banking arm from India, HSBC Holdings chief executive (markets) John Studzinski said in Mumbai on Wednesday. To start with, there will about 40 positions for high end research and analytics at this centre.
HSBC already has one outsourcing centre in Hyderabad for handling back-end functions of the commercial bank.
“THE bank leverages on India’s strength wherever it sees fit. We see the labour market as a global market and this will favour India,” Studzinski said
THE global group’s decision to establish analytical support facility to exploit the growing business opportunities and meet the group’s overseas requirements will, however, not result in a loss of jobs, assured HSBC head corporate and institutional banking Naina Lal Kidwai.
SHE added: “We are expanding in these regions and the decision today is whether to recruit more people here (in India) or there (in the existing cities where analytical teams are already in place).”
THE plan is to exploit the “bright and cheap” talent pool in India. In the first move, the staff strength of the domestic capital market, corporate and investment banking team will increase by 25 per cent.
WITH the expansion of equity markets — secondary and primary — and consolidation taking place in the corporate world, including cross-border deals, the head count in the capital market and related banking areas will rise by 25 per cent over the next five years, said Studzinski.
CURRENTLY, HSBC Securities and Capital Markets Ltd has just under 100 people and the investment banking division consists of 21 employees.
HSBC will add a few people with high calibre rather instead of having a large team. Indian operations would grow in expertise in sectors like cement, minerals, metals, among others, said Studzinski. It will also recruit 20-25 fresh university graduates every year and give them one-year training at its overseas offices to capitalise on the domestic talent pool.
RESPONDING to the question on what India Inc wants from HSBC, Studzinski said that corporate clients feel that there is a need for HSBC to provide greater number of products in the area of equity and markets.
[b]Buiness Standard[/b]
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| BPO COMPANIES URGED TO UPGRADE! |
| 04.20.04 (9:38 pm) [edit] |
The[b] IT services outsourcing and business process outsourcing (BPO)[/b] sectors, which have created the India brand, need to upgrade to Version 2 to brace up to the emerging challenges and meet competition from other countries.
The Managing Director of the View Group, a US-based Venture Capitalist and Vice-President of Indo-American Chamber of Commerce (IACC), Gopal Jain, told Business Line that Indian companies need to watch out against being complacent given the recent concerns about outsourcing in the US and its implications.
It is important to understand that outsourcing sector is not an adjunct to the ITES. The only connection with IT is that the sector is IT-enabled.
"India is yet another country handling outsourcing and cannot emerge as a leading player unless it upgrades to Version 2.0. Outsourcing is a reality and going forward, industry players need to address issues beyond the present concerns such as scaling up the value chain to focus on new areas of expertise and particularly human resource concerns and attrition blues".
Yet another matter that needed a constant thrust was one of sustaining quality that could differentiate one company from another," he explained.
"The industry is faced with the task of continuing to be competitive by handling the growing demand for quality manpower. If you look at the hiring trends in the BPO sector, typically, the recruitment is in 100s and not in 10s as is the case with the services sector.
Given the potential for growth, there are sectors such as manufacturing and engineering design applications, where there is huge untapped opportunity," he explained.
To address these issues, a networking platform called Global Offshoring and Outsourcing Summit 2004, and a premier BPO conference are being organised by IACC in Mumbai on April 21-22.
The theme of this year's summit is Version 2.0 of the India Offshore Outsourcing Advantage, he said.
IACC has focused on development of trade and commerce between the two nations.
Jerry Rao, Chairman and CEO, MphasiS BFL and Chairman, Nasscom; Dr Lalit Kanodia, Chairman, Datamatics Technologies; Paul Morrison, Director, Percept Risk & Strategy, UK, are among several other industry representatives.
[b]Business Line[/b]
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| India upbeat about grappling with labor crunch |
| 04.18.04 (9:42 pm) [edit] |
[b]By John Ribeiro
IDG News Service, Bangalore Bureau[/b]
As business booms for Indian IT [b]outsourcing[/b] service providers, hiring and retaining software engineers at salaries considered reasonable in the country has become difficult. Despite the staff crunch, however, multinational companies are still setting up or expanding software development facilities in the country, or outsourcing to Indian software service providers.
In the face of a looming labor crunch, multinational and Indian companies have used a variety of tactics to help ensure delivery of high-quality services that are still well below U.S. and Western European costs.
If a company is looking at a combination of relatively low cost, high quality staff and a large pool of talented people, then India is still the best location, said Chinnikrishna Kommi, managing director of Trilogy E-Business Software India Pvt. Ltd., the Bangalore, India-based software development subsidiary of Trilogy Software Inc. in Austin, Texas.
However, large multinational technology services companies like [i]Accenture Ltd[/i]., [i]Electronic Data Systems Corp[/i] and [i]IBM Global Services [/i]are hiring staff by the thousands in India, and are blamed by Indian service providers for pushing up salaries .
These big companies "are willing to give 30 to 40 percent hikes in salaries," said Laxman Badiga, chief executive for staffing at Wipro Ltd., one of India's largest IT services companies.
Salaries of junior management and software professionals in the IT services industry in India will grow by 16.3 percent this year, compared to an increase of 15.3 percent last year, according to Aditya Kohli, associate at Gurgaon, India-based Hewitt Associates (India) Pvt Ltd, the Indian subsidiary of U.S.-based Hewitt Associates LLC, a human resources outsourcing and consulting firm. Salaries of senior management will grow by around 11.8 percent over last year, he added.
Staff turnover rates are also going up across the industry, reaching 12 percent to 15 percent per year at Wipro, according to Badiga.
While large Indian outsourcing companies and multinationals with strong brand names will not face much difficulty in hiring and retaining staff, the smaller Indian companies are likely to be hit, according to Ravindra Datar, principal analyst for IT services and BPO (business process outsourcing) at Mumbai, India-based Gartner India Research and Advisory Services Pvt. Ltd.
However, the overall climate for hiring IT professionals could get even more difficult. India's IT services exports are forecast to grow to US$28 billion by 2009 up from $7.5 billion in 2003, according to a joint study by KPMG Advisory Services Private Limited and the Delhi, India-based National Association of Software and Service Companies (NASSCOM). But by 2009, India's IT manpower resources could fall short by 235,000 of the 1.12 million staff required both for IT services exports and domestic IT
services, according to the KPMG-NASSCOM study, which suggests remedial measures, such as higher private sector support for IT education.
Nevertheless, India is not going to get undercut by cheaper prices from service providers elsewhere, say industry sources. Software development staff in India still costs about one-fourth what it is in the U.S., according to Trilogy's Kommi.
Also, high-quality professionals may not require top dollar salaries if projects are interesting enough. Other factors such as the opportunity to learn and grow, the type of work and work condition quality can have greater weight than salary, Hewitt's Kohli said.
Startup companies working in embedded software or other high technology areas also find it easier than other types of companies to hire and retain staff.
"We had no difficulty in hiring and retaining staff, as we are seen to be doing high technology work, and also there are not many companies in India that do embedded software," said Anant Koppar, chief executive officer of Kshema Technologies Limited in Bangalore, which has 400 employees, and is being acquired by the Mphasis BFL Group, a Bangalore-based IT services provider.
As the supply of experienced software engineers gets tighter, large companies also are increasing recruitments from the campus. "The campus hires come in at lower salaries but their productivity is also lower," said Badiga. "The real advantage in campus hires is that they are better able to fit culturally with a company and identify with its values."
Wipro currently hires about 35 percent of its new staff from the campus with the balance about 65 percent hired from the market. "We intend to reverse this ratio going forward," said Badiga.
A company's ability to hire quality IT staff also depends on its location, with Bangalore regarded as one of the tougher locations. Cognizant Technology Solutions Corporation, a New Jersey-based IT services firm, has its main Indian operation in Chennai in Tamil Nadu state in South India, where there are a large number of top-notch engineering colleges.
"By end of 2006 we will probably have over 10,000 staff in Chennai," said Ramakrishnan Chandrasekaran, managing director and executive vice president of Cognizant. The hires in Chennai also have strong domain expertise in enterprise business applications in the financial services, manufacturing, and retail markets, all areas on which Cognizant is focused, Chandrasekaran added.
Having established a base in Chennai, Cognizant is well-enough established now to expand its development center in Bangalore from 700 to 2,000 staff over the next 12 to 18 months. "If you don't have a brand name, it is tough to hire in Bangalore," said Chandrasekaran. "We consciously avoided Bangalore until about two years ago. We have now established a brand as a tier-1 company specializing in offshore, and we are able to hire very freely."
[b]Featured Article[/b]
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| Offshore outsourcing boosts domestic employment, wages: A Study |
| 04.15.04 (2:53 am) [edit] |
Sending U.S. computer software and services jobs overseas increases domestic jobs and wages, according to a study published today by the Information Technology Association of America, an Arlington, Va., trade group.
Global Insight Inc., a Waltham, Mass.-based economic forecasting company, conducted the study for ITAA.
The study found that offshore outsourcing will create:
516,000 jobs in software and IT services over the next five years, with 272,000 going offshore and 244,000 being created in the United States
An increase in U.S. wages of 0.13 percent in 2003, climbing to 0.44 percent in 2008
An increase of $124.2 billion to the U.S. gross domestic product by 2008
$20.9 billion in cost savings from offshore outsourcing of software and IT services by 2008, much of which will be reinvested in the United States.
According to ITAA, 10 percent of U.S. IT software and services jobs have been lost since 2000, but only 2.8 percent of those jobs have been lost because of offshore outsourcing. Most jobs were lost because of the dot-com and telecom busts, the economic recession and productivity gains, the study said.
Nevertheless, ITAA President Harris Miller said, “We cannot ignore displaced U.S. workers. Their pain is real.”
Miller said workers laid off because of offshore outsourcing should get government help, such as relocation assistance and job training, along with compensation during the training period.
He also said the federal government should continue to urge other nations to remove barriers to U.S. exports and open their services markets to foreign competition. The government should not enact barriers to offshore outsourcing, because doing so would slow the U.S. economy and cut the number of new domestic jobs, Miller said.
“We have long held the position that global sourcing creates more jobs and higher real wages for American workers,” Miller said. “Now we have the data that prove it.”
[b]Gail Repsher Emery - Washington Technology[/b]
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| Outsourcing is here to stay: CNN Reports |
| 04.14.04 (11:01 pm) [edit] |
[u][b]Check this CNN Release!!![/b][/u]
Offshore outsourcing firms are feeling some heat from US political backlash and rising rupee, but business continues to thrive, hinting that the trend is here to stay, said a media analysis.
Pointing to the profits of Cognizant, Infosys, Satyam, Syntel and Wipro, CNN said, "offshore outsourcing firms are feeling some heat from a US political backlash and the rising Indian rupee, but if the earnings report of an industry bellweather Tuesday is any guidance, business is still pretty good and unlikely to suffer a major setback anytime soon."
[b]Infosys Technologies [/b]announced it has become India's first listed IT firm to have crossed one billion US dollar turnover and rewarded its shareholders with three bonus shares against each shares against each share held.
All the firms interviewed spoke of woes but "[i]none will fall off the table, analysts believe. Put simply, the outsourcing trend is here to stay[/i]," CNN said.
"While there is a risk that political rhetoric may heat up as we get close to the US Presidential election," said Mayank Tandon, an analyst with Jenney Montgomery Scott, "it has had no material impact on the tone of business."
"Right now, demand is strong, and expectations are for revenue growth to be more than 30 per cent per year for the industry in general. That would be the forecast for the next several years," he said.
Analysts noted, said CNN, that the political backlash has not translated in any meaningful way into actual laws. A few State governments have cancelled contracts with outsourcing firms but the vast majority of protectionist measures proposed in State and Federal legislatures have died.
[i]At Washington[/i]
[b]WEBSOURCES[/b]
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| Managing Outsourcing: Abstarct from a Report by Forrester Research, Inc. |
| 04.02.04 (2:46 am) [edit] |
WORLDWIDE, outsourcing is growing at double-digit rates. While IT outsourcing has been the most predominant form of outsourcing to date, outsourcing of key business processes, such as human resources (HR), logistics and shipping, or procurement is increasingly being considered by large companies worldwide. Outsourcing is being driven by a desire to reduce the cost of operations, the need for business flexibility to respond quickly to changing markets, and requirements to mitigate business and technology risks or to obtain specialized knowledge or skills.
Even though outsourcing continues to grow in importance within the enterprise, more than 40 percent of these relationships will still fail to deliver the business value originally envisioned by the parties when the contract was signed. These outsourcing failures will cost US companies between $30 billion and $40 billion a year in lost time and expense.
One of the ways companies can improve the success of their outsourcing relationships is by aligning their outsourcing management and organization structures with a type of outsourcing transaction. Offshore applications outsourcing, for example, requires a very different management structure than an on-site facilities management deal, yet it has been found that most companies only consider how they will manage their outsourcing relationship after the deal has been signed.
Outsourcing models are changing rapidly as advancements in technology and networking improve. Companies can choose an on-site arrangement, off-site processing in the outsourcer’s facility, nearshore processing in a contiguous country, or an offshore model in which the processing is done in a country with a very low-cost structure. Each of these models has very different benefits and risks, and each requires a very different approach to management and organization.
Choosing the appropriate outsourcing model involves more than looking for the lowest cost option. For example, an on-site outsourcing model allows the customer to exert the most control, since processing is located within the customer’s facility. The trade-off, of course, is that this model will usually cost more than the other outsourcing options available. This trade-off of control vs. cost is one of the fundamental truths of outsourcing. In every outsourcing option, customers will always have to decide whether to trade better cost savings for less direct control.
Companies that fail to appropriately manage their outsourcing relationships will not only spend more money than is necessary, they will also obtain fewer benefits, customer satisfaction will likely be impacted, and more importantly, these companies increase the risk of outsourcing failure.
Making the best IT outsourcing decision – whether it is onshore, nearshore or offshore – and putting in place an effective management process to ensure its success is vital not only to achieving the goals of the outsourcing engagement, but also to the long term success of the enterprise itself. This report provides the intelligence that will help to achieve that goal.
The report clearly indicates the strategical elevation that's essential for a successful business outsourcing decision. Through this Blog we'll try to focuss on the core values of outsourcing, latest newsfeed and insight into one of the most talked issue in the 'Economic Globe.' Your responses and feedback will fulfill the aim of making this effort a success.
* The Report above is an abstract of Giga Information Group - Forrester Research, Inc.'s report "Managing IT Outsourcing: Onshore, Offshore and Nearshore"
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The BLOG will keep track of the latest Offshore Outsourcing moves and news! This is an attempt to get closer to the market and verify actually whats happening! SHARE YOUR THOUGHTS AND IDEAS ABOUT THE PRESENT STATUS OF THE INDUSTRY IN DISCUSSION.
"Tax return outsourcing gives the accounting firm the chance to keep its preparation business and remain competitive," said Allan Koltin, president of Practice Development Institute, a practice management consulting firm based in Chicago. "I wouldn't be surprised if this becomes the norm in the next couple of years."
- Accounting Today, March 2003
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