Archive for September, 2010

SA is attracting world’s call-centre business

September 30th, 2010

THE call centre, financial accounting, human resources management and IT support industry — collectively called business process outsourcing and offshoring — is one of SA’s fastest-growing economic sectors, according to the Department of Trade and Industry revised industrial policy action plan, released earlier this year.

This is significant in a country with one of the highest unemployment rates in the world — estimated by Statistics SA at 25,3%.

Business process outsourcing is the practice of using a third party contracted to perform specific, specialised processes on a company’s behalf, such as payroll functions, human resources and customer call centres.

The government has long pinpointed business process outsourcing as a high-priority sector, especially since its growth could absorb a “large and well-educated labour pool, with over 300000 new school leavers and 100000 graduates entering the workforce annually”, the document says. The call centre sub sector grew about 8% last year, employing 54000 people.

SA has a big youth unemployment problem, with 2,8-million of its citizens aged 18-24 jobless or in education or training facilities.

SA has made moves to elbow its way into the international tussle for the sector, offering incentives to global giants such as IBM, Fujitsu Siemens, Lufthansa, Virgin, Sykes, Avis, Car Phone Warehouse and Amazon. They have opened customer-service centres in SA.

According to the department, SA is seen as a preferred location for business process outsourcing as the majority of people speak English, the telecommunications infrastructure is improving and labour is fairly cheap compared with the West.

However, concerns have been raised about the potentially exploitative nature of outsourced operations, especially as competition for business increases.

But Garth Strachan, the department’s industrial policy director, says the incentive programme it and the Business Trust offer foreign companies is conditional, with exploitation prohibited.

SA is faced with stiff competition from other developing countries for this sort of business.

India has 63% of the business process outsourcing and offshoring market, commanding 30bn in revenue last year, according to the Indian finance ministry. China announced last month that it will not levy operating taxes on offshore service outsourcing businesses in 21 of its main cities in a bid to attract foreign investors.

In Africa, Rwanda’s 50m IT industry has pushed the Rwanda Development Board to promote the business process outsourcing industry. The board says Rwanda would handle financial accounting and human resource services, catering for nongovernmental organisations (NGOs) operating in the country.

“There are approximately 50 NGOs in the country who would be the key beneficiaries of outsourcing services. NGOs in Rwanda are keen to outsource skills outside their core competencies of relief, education and social development,” says Christine Akuzwe, the board’s investment officer.

Official figures for SA show that Gauteng dominates business processing outsourcing, employing about 35000 people.

In SA, call centres make up two- thirds of the industry, while the remaining part includes financial accounting, IT support, data analytics and an assortment of legal services.

Mteto Nyati, director of global technology services for IBM in SA, said at a seminar on outsourcing that SA was “at the centre of IBM’s new strategy”, which involves creating global shared services and centres of excellence in seven strategic locations around the world. IBM has moved many of the high-value services it provides to clients, including some big names, to SA, where it employs more than 1500 staff.

“SA is not a normal call centre location but a highly technical environment where highly skilled people are managing complex IT issues,” Mr Nyati says.


Chile aims for the high-end of offshore outsourcing

September 30th, 2010

Chile aims to be a key supplier of IT and related services to the U.S. market, but its key challenge is that it does not have the large number of trained people required to compete with the large software and services operations in India and the Philippines.

The country is now planning to grow its outsourcing business to the U.S., by focusing on high-value work, and also by partnering with other Latin American countries that have larger populations and skilled staff.

For a country like Chile with a small population and market, the U.S. is an obvious target market for IT services, said Juan Carlos Munoz, CEO of Chile-IT, a trade organization of Chilean outsourcing companies that aims to promote Chile’s services business in the U.S.

Chile has a population of about 16.6 million people, and the number of staff working in the country on IT services for global markets is smaller than the number of staff in a single large Indian outsourcing company.

In 2008, for example, Chile’s global services revenue was about US$840 million, and the industry employed about 20,000 people, according to a study by research firm IDC for CORFO, the Chilean economic development agency.

Over 50 percent of this revenue, however, came from Latin America, with the U.S. accounting for 21 percent. The larger part of the revenue also came through foreign companies operating in Chile, rather than from the more numerous local companies, IDC said.

Over half of the country’s global services revenue came from engineering services, application software development, and research and development (R&D) services, according to IDC.

Chile’s intention is however not to compete with India and the Philippines in volume businesses like software development and other services, but to focus on high value-added services, said Carlos Bustos, global services director of NovaRed. “You can’t get the people required for that kind of work in probably the whole of Latin America,” he said.

Getting good quality technical staff in Chile is not a problem for NovaRed in Santiago, which offers managed security services mainly to customers in Latin America.

The work that NovaRed does is niche and specialized, and doesn’t require a large number of people, Bustos said. The company’s main facility in Chile employs 150 people, but the company has also set up a services center in Argentina with 40 staff, to address the local market and to take advantage of local staff. This strategy of expanding in the region to hire staff may continue if business from the U.S. picks up, Bustos said.

Customers in the U.S. get services from NovaRed in the same time zone, rather than from staff working on a night shift at higher rates at an Indian outsourcer, Bustos said.

Analysts think Chile can play an important role in the outsourcing business. “Chile is one of top five popular destinations in Latin America for near-shore and offshore work,” said Avinash Vashistha, chairman and CEO of Tholons, an advisory firm for global outsourcing and investments. Despite the small population of the country, Chile has good quality talent for niche work in specialized domains, he added.

Chile has a sophisticated talent pool with pockets of strength in IT applications, IT infrastructure and industry-specific IT implementations, said Anand Ramesh, research director at Everest Research Institute. The country also has top quality infrastructure like roads, telecommunications, and electricity, but it is among the more expensive locations in Latin America, so it is not the place a customer would choose to dramatically cut costs, Ramesh added.

For a large buyer looking to build a global portfolio, Chile’s role would most likely be that of a small-scale location with a specialization on higher-value knowledge services or IT activities, Ramesh said. It is unlikely to be the place where the biggest offshoring adopters, like the large U.S. banks, have a thousand or few thousand people doing their work, he added.

Chile has also invested significantly in training staff to speak in English, said Peter Leatherbee, marketing manager at Excelsys, a product company in Santiago that is focused on online banking for small and medium size banks.

Chile’s highly educated staff are typically also well trained in English, said Manuel Ravago, research director at Tholons. As the country’s services industry is more likely to hire highly educated people, getting people who know English is not a problem in this segment of employees, he added.

India or the Philippines may be cheaper than Chile and similar countries in delivering services, but they may not necessarily be the most capable in delivering specific services, Ravago said. Countries around the world are developing specializations, and Eastern Europe for example is fast emerging as hotbed for clinical research outsourcing, Ravago said. One of the unique advantages of Chile has been its ability to provide niche services or focus on specific industries, he added.

Besides investing in building talent in Chile, the country’s outsourcers also plan to tap staff from other countries, Munoz of Chile-IT said. The policies in the country have been liberalized to allow companies to hire workers from abroad. NovaRed’s facility in Chile has a mix of locals and people from Argentina and other countries, Bustos said.

As business picks up, Chile, which is politically stable and has a growing economy, also plans to position itself as a conduit or hub for the delivery of services from Latin America to the U.S and other key markets, Munoz said.

“We will by this model be able to leverage our own resources, as well as those of our neighboring countries,” Munoz added.

Chile-IT expects that other Latin American outsourcing companies will partner with Chile to address the U.S. market. Likewise, U.S. companies will look to Chile as a partner to get access to services not only from Chile but from the rest of Latin America, Munoz said.

Chilean IT services companies are already setting up operations in other countries in Latin America to benefit from the skilled staff available in these countries, and to offer services to customers, Bustos said. Chilean IT companies will set up operations in these other countries or contract the work to companies there, Munoz said. “We will deliver the high-end services from Chile, while some of the other volume work can be done from other countries that have larger populations and staff,” he added.

The challenge for Chile is to build its business in the U.S. market where some of its companies are not well known. Local Chilean companies are adopting a variety of strategies. NovaRed for example has partnered with system integrators in the U.S. to market its services to customers there, Bustos said. “We complement the services offered by the system integrators,” he added.

Although all its revenue comes currently from Latin America, NovaRed expects its one-year-old strategy to start getting it revenues from the U.S. market soon, Bustos said.

Chile-IT is helping local companies gain visibility in the U.S. market by helping them open offices and do business in the U.S., Munoz said.

Having multinational IT companies set up subsidiaries in Chile has also helped the country gain credibility as an IT location, Leatherbee said.

European IT services company Capgemini and India’s Tata Consultancy Services have operations in Chile.

Chile is also likely to be attractive to U.S. customers who are looking to diversify the locations they currently source services from, Busto said.


Investors eye first earnings from India’s Satyam

September 30th, 2010

Indian outsourcing firm Satyam Computers was set Wednesday to report its first earnings results in nearly two years after a massive false accounting scandal rocked the firm, threatening its future.

Satyam’s shares rose as much as 3.6 percent to a day’s high of 102.45 rupees on Wednesday, outperforming the broader market, ahead of the announcement of earnings data, due after the market closes.

Now rebranded Mahindra Satyam after a takeover by the mid-sized software outsourcer Tech Mahindra, the company was due to report figures for the financial years 2009 and 2010.

The company is also in the process of restating its accounts for the last half dozen years to give a precise picture of the firm’s past performance.

Investors dumped the stock and clients melted away after Satyam’s former chairman B. Ramalinga Raju admitted overstating profits for years and inflating the company’s balance sheet by more than one billion dollars in January 2009.

Raju’s revelations marked India’s biggest corporate fraud and have been likened to the US energy giant Enron, which collapsed in 2001, also over false accounting.

Raju, who faces a slew of charges including conspiracy, cheating and forgery over the scandal, is free on bail after being released on health grounds by a court in the southern city of Hyderabad.

Analysts are divided on Satyam’s future, with some saying the worst is over for the fraud-hit firm while others argue it could take a “few quarters or even years” of uphill struggle to fully emerge from the scandal.

Citigroup expects Satyam to post net profit of 6.18 billion rupees (137 million dollars), on revenue of 52.14 billion rupees for the 2010 fiscal year ended March 31.

Satyam’s stock plunged more than 90 percent when the scam broke but recovered when a government-appointed board took charge and later chose Tech Mahindra as the new owners through a bidding process.

Satyam’s shares, however, are still 45 percent below their pre-crisis levels.

In April, Tech Mahindra, a unit of the tractors-to-holidays conglomerate Mahindra and Mahindra, paid nearly 600 million dollars for a majority share of Satyam.
Investors have been waiting for signs of recovery, particularly after the firm said last week it would delist from the New York stock exchange over fears it might not meet US reporting deadlines for its restated accounts.

Satyam has struggled to retain staff in the face of stiff competition from rivals such as Tata Consultancy Services and Infosys Technologies, which have both ramped up recruitment as demand for outsourcing increases.

“With predatory competition, client and staff attrition, and a damaged reputation, the combined entity faces an uphill struggle over the next few quarters, if not years,” CLSA analysts said in a recent report.

Satyam, ranked as India’s fourth-largest outsourcer by revenue when the scandal broke, acts as a back office for some of the world’s biggest companies including Nestle, General Electric and General Motors.

The firm operates in nearly 70 countries, with 690 clients including 185 Fortune 500 blue-chip companies and provided key logistics for this year’s World Cup football tournament in South Africa.


TCS bags $50m AGL deal

September 30th, 2010

ENERGY supplier AGL has inked a $50 million-plus deal with Tata Consultancy Services Australia as the IT services firm doubles its training budget to $1m.

The contract is an extension of AGL’s relationship with TCS. It spans five years and covers infrastructure management services.

It is understood TCS edged out IBM to seal the deal.

AGL was one of six new major wins in the last six months for TCS.

TCS inked a $16m outsourcing contract with the electricity provider in 2007 to work on multiple SAP projects and other programs that involved advanced metering, gas trading and pricing engines.

The India-based IT services firm partnered with BMC Software to clinch the new body of work.

TCS said more than 650 consultants were dedicated to the AGL account.

AGL chief information officer Owen Coppage credited the outsourcer’s quality of service and relationship management for the win.

“TCS’s focus on the relationship, rather than the contract, has resulted in higher levels of service each time we moved (into) a new area to TCS,” Mr Coppage said in a statement.

“We expect the new deal to similarly enhance our experience, further strengthening our strategic relationship.”

TCS’s local general manager Varun Kapur said he was confident AGL would continue to receive delivery certainty with TCS and partner BMC.

TCS recorded a 40 per cent compounded annual growth over the past three years in Australia, he told reporters in Sydney.

Mr Kapur didn’t provide revenue details but said there had been an uptick in demand for its services and the pipeline was looking healthy.

The increase in business was across different verticals, he said, including banking, finance, energy, media, telecommunications and superannuation.

The company counts Qantas, Commonwealth Bank, Woolworths, Citibank Australia, Superpartners and Westpac as customers.

Mr Kapur said TCS was on an aggressive recruitment drive as it battled rivals for skilled workers.

The company has been adding around 20 fresh faces to the local team every month, according to Mr Kapur. “There is a talent war,” he said.

Three years ago TCS had around 400 employees. Today it has 4324 staff mostly dedicated to Australian clients, with around 40 per cent of employees based locally.

Mr Kapur sees training as a key differentiating factor in luring the best minds to TCS.

Last year the company spent less than $500,000 on training programs but that has more than doubled in 2010.

“We’re investing $1m on training in Australia this year,” he said. Training will cover a mix of technical and management courses.

The company also sponsored six local graduates to six-month training stints at centres in India.

TCS has embarked on a program to help underprivileged Years 11 and 12 students embrace IT as a career.


Who said Indian suppliers lack innovation?

September 30th, 2010

BA and Tata Consultancy Services (TCS) have created an SAP system for the airline to support aircraft maintenance.

IT bosses often refer to outsourcing suppliers as “extensions to the IT department.” This agreement is an example. It also questions the constant accusation, that I hear, that Indian firms don’t innovate.

The service is for aircraft maintenance, repair and operations (MRO) and is built SAP. It is called “SWIFT MRO”. See story here.

Aircraft maintenance is about as business critical as it gets for an airline.

BA and TCS already have UK Innovation Lab in Peterborough, which opened in 2007. The lab offers users a multi-supplier IT environment where they can develop, incubate and pilot IT projects, using the latest technologies.

It is a great way to get some money back for all your IT investments and a way of helping a long term partner win business. Good in the post recession climate.


Lauding defeat of US anti-outsourcing bill premature

September 30th, 2010

The Senate might have quashed Democrat plans to force U.S. firms to produce jobs and profits at home, rather than overseas, but India Inc is wrong to think the danger has passed.Indian employees at a call centre provide service support to international customers in Bangalore March 17, 2004. REUTERS/Sherwin Crasto/Files

Over the past few weeks, India’s newspapers have been littered with stories surrounding U.S. President Barack Obama’s comments on curbing outsourcing, and India Inc’s gross indignation at the White House’s intentions.

No surprise, then, to see bullish headlines following the Senate vote that effectively ended legislation dubbed the Creating American Jobs and End Offshoring Act. ‘India Inc cheers defeat of anti-outsourcing bill in US‘, ran one leading daily, while another led with ‘Anti-outsourcing Bill dies a quiet death in the US‘. Death is wide of the mark.

With the crucial November mid-term elections looming, the biggest issue for U.S. voters is the economy, with many angry that the lauded economic stimulus Bill passed last year has not prevented the unemployment rate rising above 10 percent. The ball is in Obama’s court, and if he can’t rectify the situation, the Democrats will likely suffer at the hands of the electorate in two months’ time.

Thus for the Republicans — who if in power would surely be contemplating similar anti-outsourcing legislation to appease angry voters seeing jobs flourish in Bangalore instead of Baltimore — the goal is to show Obama and the Democrats as an incapable party, unable to govern and unable to fix the problems. And that means blocking legislation.

The Senate voted 53-45 for the bill, far short the 60 votes needed to break a filibuster, with four Democrats crossing the aisle. Democrats portrayed the Republicans as “job-killers” afterwards, but no political analyst would deny that Republicans play the patriot card far more often than their opponents.

This wasn’t all about jobs, it was also about politics. And that’s why India Inc is not out of the woods yet.

After November, when the dust settles and – most likely – Obama faces a Clinton-like situation of governing over a split legislature for the remainder of his term, the public will demand political compromise to improve the economy.

Then, with far less gains to be had in playing politics, and the rise of the far-right Tea Party to counter, both sides may well favour a bill that protects American jobs at the expense of those elsewhere.


CompuCom Sponsors SIMposium 2010

September 30th, 2010

CompuCom Systems, Inc., the leading IT outsourcing specialist, is a Silver sponsor at SIMposium 2010, the premier practitioner-driven conference designed for and by CIOs for peer-to-peer exchange on technology and business integration best practices. John Douglas, CompuCom CIO, will share how his organization is making an “Ascent to the Cloud with Grounded Approaches.” This year’s theme is The Charm of IT: Bringing People, Process & Technology Together and the event will take place October 3–5 in Atlanta.

Douglas is the featured speaker in the session on Monday, October 4, that begins at 11:00 a.m. He will explain how CompuCom has used traditional approaches with timelines and contingency options to advance closer to the Cloud. Douglas has been in the IT industry for more than 25 years, and his prior positions include Global CIO at Getronics and various roles with Baan Company, Cisco Systems, and IBM.

Stop by the CompuCom booth to learn more about the company’s journey to the Cloud.


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