Archive for February, 2013

Poland Emerging As Major European Outsourcing Hub

February 28th, 2013

The first time Javier Bofarull Marques left Spain for Poland, it was for love. It was 2006, a boom time in Spain, and his friends thought he was crazy. He recently moved back to the Eastern European country and it was for a job this time because Spain’s economic crisis left him unable to find work there.

Poland’s economy has grown for 21 years straight, while some Western European countries are trying to recover from their most crippling recession in generations. The result is a striking change in its infancy: a country whose poverty and political oppressiveness once drove its people abroad in droves is now attracting workers from the West.

“Here I am recovering my dignity,” Bofarull Marques, 44, said from Krakow, where he landed a job with an international firm as a senior financial accountant after a fruitless eight-month search in Barcelona. “Poland is giving me another chance.”

The number of people from richer Western countries working in Poland is still small, and some Poles still migrate to Britain and other higher-wage countries in the West. Nonetheless, years of economic growth and European Union membership are indisputably transforming this country of 38 million people, the largest of the former Eastern Bloc states now in the EU.

A key source of this phenomenon comes from an outsourcing sector that has exploded in recent years, turning Poland into “the leading outsourcing destination in Europe,” according to a recent report by Jones Lang Lasalle.

The phenomenon began nearly 10 years ago when some international companies began outsourcing simple tasks to Poland; workers would key invoices into computer systems, or Poles with knowledge of various languages would answer customer questions on help desks, taking calls from across Europe. Since then, the tasks have grown increasingly sophisticated, and now include software development along with a wide range of accounting, financial and legal services.

The result has been the growth of new and challenging jobs that are limiting a brain drain from Poland and which are attracting people like Bofarull Marques, who is thrilled to be developing his skills and staying independent while some of his friends in Spain, where the unemployment rate is 26 percent, are moving back home with parents.

The tasks being performed in Poland now are many: graphic designers develop marketing campaigns for companies thousands of kilometers away, workers use Hebrew or Italian to procure orders for a Swiss agriculture company from an office in Krakow, accounting teams prepare tax filings for the French or other governments and research centers develop computer software used in German cars.

There are now office buildings and office parks sprawled across many Polish cities where the outsourcing takes place, including Gdansk, Warsaw, Wroclaw and Lodz. But the clear leader is Krakow, which was even ranked this year as the world’s No. 10 outsourcing destination worldwide — ahead of even Shanghai and Beijing — by Tholons, a Washington-based offshore consulting and investment advisory firm.

Foreign companies are attracted to Poland for several reasons, including labor costs that are roughly half of those in Western Europe.

But executives says it goes far beyond that and commonly cite the following factors:

— Polish university graduates often have strong backgrounds in information technology and engineering, a continued legacy of the communist-era educational system, as well as widespread knowledge of English and other foreign languages.

— Poland is a sizeable country in the center of Europe and produces about 400,000 university graduates each year. This is a “fantastic talent pool,” said Marek Grodzinski,” who heads a business center for the French outsourcing company Capgemini in Krakow. “That’s a great pool for firms like ours.”

— Political stability and a strong rule of law strengthened by EU membership. “Political stability gives Poles an edge. China is also an emerging location for outsourcing,” but international property protection is a risk, said Przemek Berendt, the vice president for global marketing at Luxoft, an IT services outsourcing company headquartered in Russia. “But as an EU member, Poland protects intellectual property rights.”

That’s important for companies like Luxoft, which creates trading platforms for investment banks and automotive software.

The outsourcing sector in Poland now employees more than 100,000 people working for international companies, and is projected to grow another 15 to 20 percent by the end of the year, according to the Association of Business Service Leaders, a group that represents more than 70 companies.

There are no statistics on how many non-Poles work in the sector. For now, the numbers are small. In some cases, foreigners at Polish universities stick around after graduation; sometimes a Polish romantic partner is also part of the equation. But some of the companies are also starting to bring non-Poles to perform certain jobs if they can’t find the right person locally.

Krystian Bestry, a top executive in Europe with Infosys BPO, an Indian company with a center in Lodz, said his company has “imported” some workers from the Netherlands to Poland because it needed Dutch speakers.

“Our offer is attractive to them,” Bestry said. “While Polish wages are lower than Dutch wages, the cost of living in Poland is also much lower.”

Some other countries in the region, including the Czech Republic and Slovakia, have also attracted outsourcing, though on a smaller scale given their smaller size. Hungary has, too, though it has been spooking foreign investors since the government of Prime Minister Viktor Orban took office in 2010 and started to show an authoritarian streak. Meanwhile, Romania and Bulgaria also offer lower costs to investors, and have grown as outsourcing destinations, though a greater perception of corruption there has kept some companies away.

Companies that have outsourced parts of their business operations to Poland include Shell, IBM, Google, HP, Motorola, Heineken, Procter & Gamble, UBS, Citibank, Credit Suisse and many others — altogether more than 50 companies from the Fortune 500 list. There are also some companies devoted solely to carrying out accounting, legal work and software development for other companies. One is Capgemini, which provides business and computer outsourcing for almost 100 corporations, including Coca-Cola and Volkswagen. It operates five centers in Poland.

Some corporate leaders are clearly worried about a perception that the jobs being created in Poland represent the loss of higher-paying jobs back in home countries. Some refuse to say how many employees they have in Poland, while some companies that use the services produced in Poland ask that their contracts be kept secret.

Jacek Levernes, a member of the board at Hewlett-Packard Europe and the head of the Association of Business Service Leaders, said there is no doubt that Poland’s outsourcing sector is thriving thanks to the financial crisis in the 17-nation eurozone and elsewhere as companies seek savings. Still, he argues that the phenomenon, overall, does more to help than hurt workers in the West. He argues that if, for example, a French company barely making a profit because of the financial crisis cuts costs by outsourcing some of its internal accounting to Poland, that could be the margin of savings that keeps the entire company afloat.

“If the company must find savings, but doesn’t, it goes bankrupt — and hundreds or thousands of employees lose their jobs,” Levernes said.

The booming outsourcing sector amid a larger economy that keeps growing has left Bofarull Marques more optimistic about the future of Poland than Spain, and he expects to make Poland home for many years, perhaps even until retirement. It was not the scenario he imagined when he first moved to Krakow in 2006 for a girlfriend.

The relationship eventually ended, but along the way he bought an apartment, made friends and witnessed Poland’s economic transformation. He moved back to Spain in 2011 but only managed to find work for a short time before ending up with the mass of unemployed. Eight months of trying to find work were enough for him and so he returned to Krakow last April and quickly found work with Capgemini. The company does business back in Spain, and puts his language skills to use with that.

“When I left Spain the first time, my friends called me crazy and I often regretted the decision,” he said. “But now, with a view to the past, I think I was lucky.”


India looks within to combat BPO threats from abroad

February 28th, 2013

In its annual economic survey, released in the leadup to the country’s Union Budget, the Indian government says rivals have emulated its “unique export-led success” to earn similar global recognition.

India’s business process outsourcing (BPO) industry is expected to tip US$95.2 billion in the country’s 2012 financial year, which ends March 31, 2013. However, in the last five years, the rest of the world has taken 10 percent of India’s share of the global BPO market, according to the Union Budget & Economic Survey report, which cited figures from industry group Nasscom.

This came amid a global slowdown, which is expected to peg industry growth back from 15 percent in 2011-2012, to an estimated 8.4 percent in 2012-2013. China and the Philippines have led the attack.

“Although China faces challenges, such as language proficiency, the country is spending large amounts in mission mode to increase English proficiency, and thus may eventually emerge as a threat to India,” the report said.

It added that while the Philippines, the second-largest destination for outsourcing, is currently facing the challenge of appreciating currency, it remains a serious competitor having developed both the hardware and software segments of IT.

The Indian government also felt threatened by the protectionist campaigns against outsourcing in western countries, such as the United Kingdom which homegrown BPO industry employs 800,000 British workers.

“The Indian BPO industry needs to gear up to address the challenges,” the government wrote in the report. “Information campaigns to dispel the myths and fears about outsourcing need to be undertaken by the industry in the developed economies.”

“To address the rising wages in the urban BPO space, there is a need to move more toward rural areas, for which skills development and English-language training with American and different European accents are necessary,” the government said.

In its financial year 2012, the IT industry–which includes services, BPO, engineering, R&D, and software products– directly employed 2.9 million people, and indirectly employed 8.9 million. However, only 19 percent of IT revenues were contributed by domestic customers.

The Indian government believes technological updates within the local government and SMB (small and midsize business) customers could provide a new wave of growth for the BPO sector. It will encourage activities in these segments via the countrys’ 12th Five Year Plan, last year’s national policy on IT 2012, and the national e-government plan to digitize critical public services, and promote rural entrepreneurship.


Indian IT companies like HCL Technologies, TCS pounce on HP deals

February 28th, 2013

In the wild, it is a common strategy for the predator to single out the weakest prey and chase it down for a kill. In the cut-throat market for outsourcing deals, too, it works much the same way, and a wounded Hewlett-Packard is fair game for Indian software companies desperate to win new contracts. “Indian outsourcing companies are aggressively attacking HP, which is a very vulnerable target right now,” said Peter Bendor-Samuel, founder and CEO at Everest Group, a Texas-based outsourcing advisory and market research firm.

HP, sitting on plum contracts with the likes of American Express and Bank of America, is vulnerable as these deals worth billions of dollars are coming up for renewal. About $100 billion (Rs 5.4 lakh crore) worth of IT outsourcing deals will expire in 2013, the Everest Group estimates, with 15% of it being with HP. PC maker HP entered IT services with its 2008 buy of EDS for $14 billion, but successive leadership changes in 2010-11, took a toll on investor confidence.

HP, whose shares have fallen 60% since early 2010, recently wrote down about $8 billion in the value of its services business and is cutting about 29,000 jobs, raising a red flag for clients. Bangalorebased Mphasi BSE -0.65 %, earlier an EDS company, is now part of HP. While every outsourcer in the top tier is competing hard for HP’s clients, the most aggressive and successful ones are HCL TechnologiesBSE 0.67 % and Tata Consultancy ServicesBSE 2.14 %, observers said.

So while the success rate for Indian companies in the renewal market is around 30%, TCSBSE 2.14 % and HCL Technologies are winning 60% of the renewals involving HP clients. While the companies declined to comment for this story, those familiar with their functioning said the sales teams are systematically chasing and winning clients from HP.

“Large clients working with HP for last the 5-7 years are seeing relationship fatigue and are ready to work with new vendors,” said a senior industry executive, requesting anonymity. “What we are promising instead is more value with lower price, transparency in delivery and flexibility.” The fate of HP, which Chief Executive Meg Whitman is looking to rebuild, is neither new nor unique.


Budget 2013 raises IT-BPO industry’s hope on tax clarity

February 28th, 2013

India’s software services and business process outsourcing (BPO) industry took some cheer from the finance minister’s budget speech, which said rules on safe harbour will be issued after examining recommendations of the Rangachary Committee, the last of which is expected by the end of next month. Safe harbour was announced in the budget in 2009 but the rules are yet to be finalised and become effective.

“”The proposed safe harbour for the IT sector is not really new. What is important is when it’s going to be implemented,”” said Ganesh Natarajan, former Nasscom chairman and CEO of Zensar Technologies BSE -1.08 %. Some of the transfer pricing issues relate to loans given to foreign subsidiaries and to whether companies are keeping more profits in their overseas subsidiaries to avoid paying tax here.

Software companies have been complaining about harassment and arbitrary demands being made by tax authorities on transfer pricing. Till a few years back, most transfer pricing demands were made on captives and foreign IT firms but now several India headquartered firms are also facing issues. “”Some of the demands are totally absurd and arbitrary,”” said the CEO of a Pune-based software firm, who requested anonymity. “”Anyone who has a foreign subsidiary is facing trouble,”” he said.

Most of the other issues facing software industry have also not received much attention in the budget.

“”Budget 2013 has been disappointing for the IT-BPO sector,”” said Pradeep Udhas, partner, IT & ITES, KPMG India. “”The main issues raised by the industry like rollback of taxation on software treated as royalty, removal of the minimal contiguous land requirement for SEZs, dual levy of VAT and service tax on domestic software sales and more clarity on transfer pricing norms for the sector have been left unaddressed. One hopes that the finance minister will keep his promise of releasing the findings of the Rangachary committee by end of March 2013,”” he said.

One of the recommendations of industry body Nasscom was that dual taxation — service tax and VAT — on software products be resolved. Additionally, companies said revenues from software licensing transactions should not be viewed as royalty payments. “”These revenues should be viewed as payments for ‘use of a copyrighted article’ rather than as royalty,”” said Hanuman Tripathi, group managing director, Infrasoft Technologies.

“”Retroactive amendments coupled with conflicting jurisprudence on the subject mandates a need for rationalisation of treatment of software as “Royalty” which is subject to tax in India. Roll back of taxation of the same is clearly the ask of the industry as the non-compliance implications are dual – one in the form of interest levy and penal consequences and the other in the form of disallowance of the same as expenditure whilst computing the taxable income of the payer,”” said Pallavi Singhal, associate director – tax and regulatory services, PricewaterhouseCoopers.

Some of the other demands of the outsourcing industry were a tailored incentive model for R&D, extending it to products and services and that R&D services should be made eligible for SEZ benefits. Some companies were also hoping for a reduction in Minimum Alternate Tax (MAT) on SEZs to 10%.


Miratech Named to 2013 Global Outsourcing 100 List

February 28th, 2013

Miratech, a leading IT outsourcing provider, has been named as one of the Global Outsourcing 100 service providers by the International Association of Outsourcing Professionals (IAOP).

IAOP is the leading global standard-setting organization and advocate for the outsourcing profession with a worldwide community of more than 120,000 members and affiliates. IAOP annually conducts an independent assessment of the capabilities of outsourcing service providers and advisors, and, based on this assessment, publishes the Global Outsourcing 100 list, the World’s Best Outsourcing Advisors list, and various sub-lists. Applications are then judged by an independent panel of experienced outsourcing buyers on four critical characteristics: size and growth; customer references; organizational competencies; and management capabilities.

The unranked lists were released on February 18 at the opening day of 16th annual Outsourcing World Summit, at the JW Marriott Phoenix Desert Ridge Resort, in Phoenix, Arizona. Official Global Outsourcing 100 rankings will be presented in the May 20th FORTUNE 500 issue of FORTUNE magazine, in a special section produced by IAOP.

The Global Outsourcing 100 list and its sub-lists are essential references for companies seeking new and expanded relationships with the best companies in the industry. The list includes companies from around the world that provide the full spectrum of outsourcing services, from information technology and business process outsourcing to facility services, real estate and capital asset management, manufacturing, and logistics.

Miratech CEO Valeriy Kutsyy comments, “Getting in the Global Outsourcing 100 is a major achievement for a service provider. For us it is also important proof that Miratech is on the right track.”

IAOP CEO Debi Hamill notes, “Global competition is at an all time high. This comes at a time when companies that outsource are scrutinizing their providers more closely. The Global Outsourcing 100 list is the only guide to help companies research and compare service providers with whom they are considering outsourcing relationships.”

IAOP Chairman Michael Corbett adds, “As 2013 begins to see moderate growth in the economy, choosing the right outsourcing partners will be more important than ever. The Global Outsourcing 100 list helps companies easily identify partners that will help them emerge as leaders.”


BYOD tops IT manager priorities

February 28th, 2013

BYOD topped future trends in IT for the coming year as IT managers rated BYOD schemes as their top priority for 2012-13.

Greater user demand and expectations of cost reduction from the employment of BYOD saw the idea top other popular categories, including the likes of cloud computing, PSN and broadband capabilities, in the professional association for public sector ICT management’s (Socitm) latest annual IT Trends report.

The survey saw that cost savings, flexibility and technological and service development were rated as the top concerns by respondents, with BYOD seen as a progressive and simplistic answer to achieving these goals.


Project to improve Cebu’s image as top spot for BPOs

February 25th, 2013

The doubling of Megaworld Corp.’s investment for its Mactan Newtown Center project will help cement Cebu’s image as one of the world’s top outsourcing destinations.
Local businessmen and outsourcing stakeholders gave this observation after Megaworld recently inaugurated its 20-hectare property in Mactan and with Megaworld chief executive officer Andrew Tan’s commitment to double its investment for the project to P20 billion.Outsourcing7

Joel Mari Yu, Cebu Investment Promotions Center’s managing director, said Megaworld’s Mactan Newton would be the best answer to worries of having too concentrated  outsourcing offices in Cebu City.
“I would like to say congratulations to Megaworld and thank you for having faith and confidence in Cebu. CIPC has committed to support them in anyway we can,” Yu said.

CIPC is an organization established in 1994 with the purpose of promoting Cebu to foreign direct investments.

According to Yu, last year there were 17 outsourcing companies that opened office in Cebu and this year they would be looking at about 24 new companies to open in Cebu.

Yu said Mactan Newtown would help provide more options for these companies who would  want to expand operations in Cebu.
1,000 Jobs

At least 1,000 jobs will be generated from the two new outsourcing companies that will be opening this April in One World Center, the first BPO building built in Mactan Newtown which already host the biggest McDonald’s restaurant in the Visayas.

On the sidelines of the grand launching held last Wednesday, Results Manila executives said that they would hire 600 people for their initial operations this April.

“We will grow that to at least a thousand over the next few years here,” said Results Manila director of accounts operations Justin Harmon.

Results Manila is a global company based in the US with three delivery centers in Metro Manila.

EnfraUSA, on the other, hand will need 400 people initially for their first office in Cebu, the third one in the country according to chief executive officer Ray Chiu.

Chiu said they would need people with experience on graphics and for voice and non-voice services.

“The two new companies in Mactan Newtown is just the beginning of many more companies that we expect to come to Cebu especially with Cebu’s rise in ranking as 8th emerged outsourcing destination in the world as reported by Tholon’s Top 100 Outsourcing Destinations in the World for 2013,”  Yu said.

Other business group leaders agreed .

“It will definitely create jobs and development opportunities for Cebu. I do hope however that Lapu-Lapu City is ready for more developments and for the increased inflow of workers to the city,” Cebu Business Club president Gordon Alan Joseph said.

Cebu Chamber of Commerce and Industry president Prudencio Gesta said that Cebu would need more major developers investing for big ticket investments like Mactan Newtown in order to sustain the vibrant economic activities benefiting all sectors.


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