BPO sector celebrates reduction in illegal activity

October 17th, 2014 by Rahul Jain No comments »

A year ago, lotto scamming activities threatened to flat-line the business processing outsourcing (BPO) sector. Today, with a clampdown on the illegal activity, bolstered by the relevant legislation, there is now next to no reports of the illegal activities and the industry is thriving.Outsourcing31

“I would say a year or so ago that was the number one issue affecting not only the sector but more broadly and certainly in the last couple of months I have not heard that as a major issue anymore,” Julian Robinson, the state minister in the Ministry of Science, Technology, Mining and Energy, told the Jamaica Observer West.

Robinson attributed the reduction of complaints to Government’s introduction of legislation to battle the illegal sweepstakes, which not only posed a threat to the existence of BPO industry but has resulted in a spate of killings across western Jamaica.

In the past, scammers would get data from within some of the BPO companies. They then used that data to target their victims, mostly elderly United States residents. As the activity flourished local companies were at risk of losing their contracts from overseas entities.

BPO services target offshore or near-shore back-office operations such as accounting, human resource management and customer service (call-centre facilities).

Meanwhile, President of the Business Processing Industry Association of Jamaica (BPIAJ), Yoni Epstein confirmed that reports of scamming activities within the sector has fallen.

“The reality of it is it is on the decline. We have not heard of any instances, and to me more importantly, I haven’t heard any instances locally as the clients and prospective clients are asking about it less and less,” Epstein told the Observer West.

Both Epstein and Robinson were speaking to the Observer West following the historical signing of a deal between Columbus Communications and the BPIAJ to establish an incubator within the Montego Bay Freezone, which is expected to trigger growth, enhance market access and create new jobs.

The incubator, which is slated to be fully operational by December, will fast-track entry of new players into the business process outsourcing sector as well as facilitate short-term expansion for current investors.

The telecommunications firm — which trades as Flow and has been vigourously marketing its business brand Columbus Business Solutions (CBS) — will install, as part of its workstation solutions, screens and a combination of physical and so-called soft phones.

Columbus, which offers telephony, Internet and cable services, has ramped up its infrastructure to capitalise on businesses’ appetite for one-stop-shop, holistic technology solutions. “The partnership recognises the importance of the Business Process Industry to Jamaica’s national development and is intended to provide a solution that fast tracks new entrants to the local market, a problem that has often been cited by the Government and Industry players alike” said Sean Latty, head of the communications giant.

The BPO sector is a fast-growing industry which local economists and Government officials see as having great potential for growth, as business confidence rises and investment opportunities emerge.

Currently, there are approximately 40 BPO companies in operations, accounting for approximately 14,000 jobs in Jamaica, according to Epstein.

“We believe that this is a small portion of what the industry is capable of and the partnership with CBS will ease one of the challenges that has stifled the sector’s growth,” Epstein said. Epstein’s point is supported by JAMPRO, the government’s trade and investment promotion agency, that has indicated the sector could create 15,000 new jobs over the next five years.

“The BPO sector represents the fastest growing growth sector in the economy right now and we commend Flow as a private sector partner for coming on board and supporting this initiative,” he added.

As Jamaica seeks to improve its rankings in global competitiveness and the ease-of-doing-business indices, CBS’s initiative will help to expedite the entry of new BPO entrepreneurs, making the industry more dynamic and innovative.

Epstein was upbeat over the soon-to-be established incubator.

“The incubator is a 200 seat call centre that will be developed in the Montego Bay Freezone. The goal of the incubator is to attract foreign investors as well as local investors to start up businesses. Its cheaper access to entry, lower barriers to entry and faster uptime to get started into business. We want to make it as easy as possible for investors to want to come to Jamaica as well as for local investors and entrepreneurs to start businesses,” Epstein told the Observer West.

Epstein added: “It is also going to foster growth in existing businesses because if we have the space and someone can’t build out fast. Enough they will have access to the incubator to start-up grow their business while they develop their existing spaces.”


IBM Earnings Preview: What We Are Watching

October 17th, 2014 by Rahul Jain No comments »

International Business Machines is set to announce its Q3 earnings Thursday, October 16th. In the second quarter of 2014, the company reported a marginal decline in revenues due to currency headwinds and divestment of the customer care outsourcing business. This decline was further accentuated by weak performance of the server and storage division, which is facing decreasing sales, product transitions, market disruptions, as well as the pending divestment of a major product line (x86 servers).Outsourcing31

During Q2, IBM’s total revenue declined by 2% year on year to $24.4 billion. However, the company reported 28% rise in net income to $4.1 billion, largely due to base effect of lower earnings a year ago arising from workforce rebalancing that impacted the bottom-line by $1 billion. While its core software business witnessed low-single-digit growth, due to 3% year-over-year growth in middleware revenues, its Global Technology Services revenues declined by 1%, primarily due to the negative impact of the sale of the customer care Business Process Outsourcing services business in Q4 2013. However, cloud computing and analytics initiatives buoyed Global Business Services division revenues, which grew by 2% year over year to $4.5 billion in Q2.

We expect that IBM will continue to report growth in revenues for both the software segment and the GBS division in Q3. Trends in IT spending indicate that it will continue to grow, albeit at a slower pace. According to Gartner, Worldwide IT spending is on pace to total $3.7 trillion in 2014, a 2.1 percent increase from last year. While most of the growth is expected to come from developed countries such as the U.S., we expect the company to report growth in revenues from emerging economies, which reported a lackluster performance in the previous quarters. Furthermore, we expect order backlog to improve, which will boost revenues in the future. However, we are closely watching the GTS revenues, which have declined due to contract restructuring and pricing pressure. We also expect its server and storage division to report another quarter of disappointing results as the company is refreshing its product offering, and demand for its product remains low.

Middleware and OS Revenues

The Middleware and the Operating Systems divisions are the biggest contributors to IBM’s stock value, together making up nearly 47% of our estimate. This division continues to report good growth on the back of strong brand recognition of its suite of software such as Tivoli, Rational and Websphere, etc. Additionally, demand for enterprise software remains healthy, which should boost demand for middleware software. Furthermore, these solutions cater to the growing markets that include mobile, social and security tools. Therefore, we expect software division to post growth in Q3 as well as in the near future. However, in this earnings announcement, we are closely monitoring the growth in new licenses for the different middleware products as it will help us to ascertain software demand in today’s market in greater detail.

Revenues From GTS To Remain Tepid

According to our estimates, the global technology service division makes up 21% of IBM’s stock value. Revenues from this division have declined over the past few quarter as a result of contract restructuring and a decline in outsourcing backlog. Furthermore, discretionary IT spending from clients remains weak, which is negatively impacting outsourcing revenues. We expect this trend to have continued in the third quarter, which likely produced a decline in revenues. However, contract restructuring will help the division to post higher profit margins in Q3

GBS Revenues To Post Another Quarter Of Growth

The global business services division contributes over 11% to IBM’s stock value according to our estimates. In Q2 2014, GBS reported a 2% year-over-year growth in revenue to $4.5 billion, buoyed by growth in Business Analytics (7% growth) and Cloud (50% growth). We expect this trend to power GBS revenues in Q3 and contribute more to the top line performance going ahead.

Server Revenues To Decline

Server and storage division, which was once the cash cow of the company, is witnessing a continuing decline in revenues. The company announced the sale of its x86 server business to Lenovo in Q1, in a transaction that is to close in increments over the remainder of the year. The x86 division caters to the blade and rack server market, which is facing intense competition from white box (i.e., unbranded) and better positioned server manufacturers. We expect to get a better understanding of the divestiture process on the earnings call. The remaining server businesses – z-Systems mainframes, the Power line, and its range of high performance computing platforms – each face specific issues. Mainframes are at the trailing end of product cycle and Power systems are confronting severe disruptions in the Unix server market, albeit with the new and open Power 8 architecture. High end platforms retain a strong market position and are benefiting as well from the new Watson initiatives. In short, this challenged division is experiencing a range of issues, though the trends may well be on the cusp of more meaningful improvement.

We currently have a $227 Trefis price estimate for IBM which is about 20% higher than the current market price.


Essar says no jobs at risk in IT ‘review’

October 17th, 2014 by Rahul Jain No comments »

Essar Steel Algoma says it is in contact with “a number of vendors” as it conducts a review of how it provides IT support, though a company spokesperson said job losses are not on the table.Outsourcing30

“At the end of the day, no one’s job is at risk,” said Brenda Stenta. “The company has committed that there will be no layoffs or displacements from the IT department as a result of this undertaking.”

Members of USW Local 2724 were to meet tonight to discuss a proposal from Essar Steel Algoma that the union president says could put as many as 50 IT jobs in jeopardy.

Lisa Dale, president of Local 2724, which represents salaried unionized staff at the steel plant, said Essar told workers on Oct. 1 that it would be seeking vendor proposals for the outsourcing of IT work including process programming as well as application and infrastructure work.

“Our concern is, typically companies don’t go this route if that’s not what their ultimate agenda is,” said Dale.

Stenta said in an email to SooToday that a maximum of 25 roles out of a total of 65 in the IT department are part of the review.

The outcome of the review will be evaluated in the months ahead, said Stenta.

“We have and continue to maintain an open dialogue with the employees and the union and they are actively engaged in the review process,” she said.

A special Local 2724 membership meeting was to have taken place tonight at 7 p.m. at the the Marconi Hall, Ballroom C.

Dale said members were to discuss what the union’s response will be. She said the collective aggreement between members and the company does include language that applies to contracting out.

“We’re prepared to fight this,” said Dale.


Tata Group consolidates IT business, CMC to merge with TCS

October 17th, 2014 by Rahul Jain No comments »

Tata Consultancy Services (TCS), the flagship software unit of the Tata Group, is merging the listed CMC with itself as part of the group’s renewed efforts to consolidate its IT businesses under one single entity. This will be the outsourcing giant’s biggest merger deal after it amalgamated Tata Infotech with itself in 2005, the first sign of the group’s attempt to combine its software services businesses housed under different entities. The other IT companies within the group are the listed Tata Elxsi, in which the group holds 45%, and the closely-held Tata Technologies.Outsourcing29

Tata group acquired CMC through the government’s divestment programme in 2001, when TCS was a division of Tata Sons, the main holding company of the conglomerate. TCS became a standalone company just before it went public in 2004 and at that time the group’s holding in CMC was transferred to TCS. Since then the two companies, although in similar businesses, have remained as separate entities. At present, CMC has revenues of over Rs 2,000 crore and employs about 6,000 people.

Over the years there were whispers of CMC merger but TCS had dismissed those talks as market speculation. On Thursday, the $13-billion IT major announced it is consolidating CMC’s operations in a single company with a swap ratio of 79 TCS shares for 100 CMC shares. TCS holds 51% in CMC which has a market capitalisation of Rs 6,628 crore and the merger, subject to regulatory approvals, will see Tata Sons’ stake in TCS go down marginally to 73.4% from 73.9% now. The valuation for the deal was done by BSR & Associates, a unit of KPMG.

N Chandrasekaran, CEO & MD, TCS, said that TCS does significant work with CMC and the merger will boost its domestic presence. However, in terms of numbers there won’t be any change as CMC’s earnings are reflected in TCS’ consolidated figures. The merger will rationalise cost structure and lead operational efficiency, particularly in marketing of services, Chandrasekaran said, adding that there will not be much savings on costs. The new role for R Ramanan, CEO &MD, CMC, will be known in the coming months.

CMC (formerly Computer Maintenance Corporation) started operations in 1975, and it was only three years later when IBM wound up its operations in India under pressure from the then Morarji Desai government, CMC took over the maintenance of IBM installations at over 800 locations, which gave the company a strong foothold in then nascent IT business in the country. In 2001, in a hotly-contested divestment programme under the BJP-led NDA government, Tata emerged as the successful bidder among 15 which included then global IT giants Compaq and HP, and also homegrown majors like Wipro, Reliance Industries and Aditya Birla group.


Capgemini, NetSuite launch ‘virtual company’ BPO toolkit

October 17th, 2014 by Rahul Jain No comments »

French IT consulting firm Capgemini and cloud-based software provider NetSuite have teamed up to offer out-of-the-box, pre-configured software and applications to startups and organizations looking to scale or expand into disruptive environments. Outsourcing28

The bundled business process outsourcing (BPO) toolkit works by combining outsourced services, processes, technology and infrastructure to offer a pre-configured back office in the cloud.

It includes services such as HR and finance that the companies say can integrate seamlessly with the parent company’s existing technology. By doing so, users can lessen their go-to-market timeframe and focus on core business priorities, according to the two companies.

For example, when entering a new market, organizations are typically faced with a barrage of personnel and IT requirements. But with this virtual company model, organizations can cherry pick which business processes they wish to automate and outsource, theoretically increasing their agility when it comes to expansion.

“Many organizations generate new ideas but struggle to industrialize them due to the challenges of the administrative burden,” said Christopher Stancombe, CEO for Capgemini’s business process outsourcing. “Our Virtual Company solution was created in response to this growing demand for outsourced technology platforms to aid speed to market and reduce set-up costs. This is where the BPO market is evolving – helping solve some of the most pressing challenges in business today, by understanding what really affects the performance and culture of an organization.”


India IT Powerhouse Tata Consultancy’s Income Rises 17.8%, Continues To Beat Market

October 17th, 2014 by Rahul Jain No comments »

India’s largest information technology services provider, Tata Consultancy Services, posted a 17.8% gain in year over year net income on Thursday to keep Tata a market beater again this year.Outsourcing29

Despite slower economic growth in Tata’s core markets, the need for companies to use new technologies to gather and analyze data to stay competitive has kept outsourcing firms growing strong.

Tata remains a dominant player in the trillion dollar global IT services market.

The Mumbai based company said that the quarter ending September 30 registered net income of $872 million, up from $845 million in the previous quarter and $740 million in the same quarter last year. Shares of Tata Consultancy declined on Thursday by a little over half a percent, but are up 24.37% year-to-date. By comparison, the Wisdom Tree India (EPI) exchange traded fund, one of the most popular India trades on the NYSE, is up 23.21%. Meanwhile, Tata rivals Infosys and Wipro are mixed and underperforming. Infy is up 11.33% after getting clobbered in 2013. Wipro is down 4.53%. Tata Consultancy, which is part of the Tata Group of companies, has steadily outperformed its rivals and the Bombay Stock Exchange Sensex index over the last 10 years.

“We are focused on supporting business growth by optimizing our operations and maintaining margins in our desired range. Our cash generation has been strong resulting and we continue to make investments for business growth,” said Tata Consultancy CFO Rajash Gopinathan in the company’s press release to the market today.

IT firms have been on wobbly ground over the last two years, particularly those with deep stakes in the eurozone. Tata has managed to outperform because of its closer ties with the Indian government, providing IT services to state entities, and a solid management team to back it up. FORBES ranks Tata Consultancy as one of the top 100 innovative companies in the world.  Last year, buy and sell side analysts ranked Tata Consultancy CEO Natarajan Chandrasekaran as the best IT executive in Asia, according to Institutional Investor.

As an equity investment, Tata has become the go-to IT stock for international investors with access to Bombay listed shares, while both Infy and Wipro, listed on the NYSE, have been undperforming on a regular basis. Infy has only started to beat the Sensex in the last six months.

Tata’s growth in its second quarter was “broad-based”, it said, with all industries served by the IT outsourcer growing on a sequential basis. The impact of the integration of newly merged entity in Japan also provided additional growth to units like manufacturing and technology. Core markets
like India, the U.S. and Europe also grew.

Tata said that revenue for the quarter hit $3.9 billion compared with $3.6 billion in the quarter ending June 30 and $3.3 billion in the same period a year ago.

Tata Consultancy is one of the world’s largest IT outsourcing firms, employing over 310,000 people worldwide including in the U.S. Last year it posted sales of around $13.5 billion.


HCL Technologies Q1 net profit grows 2.1% QoQ, 32% YoY to Rs 1873 crore

October 17th, 2014 by Rahul Jain No comments »

India’s fourth largest software services provider HCL TechnologiesBSE -7.97 % today reported 32.3 per cent rise in consolidated net profit at Rs 1,873 crore for the first quarter ended September 30 on the back of strong growth in Europe and business services. Outsourcing27

The company had posted a net profit of Rs 1,416 crore in the year-ago period, it said in a BSE filing.

Consolidated revenues grew 9.7 per cent at Rs 8,735 crore in the July-September quarter of this fiscal as against Rs 7,961 crore in the same quarter of the previous fiscal.

The firm follows July-June as the fiscal year. In dollar terms, net profits rose by 36.1 per cent to $307.2 million in the first quarter of the current fiscal as against $225.6 million in the year-ago period.

Revenues rose by 12.8 per cent to $1.43 billion during the review period from $1.27 billion in the corresponding quarter last fiscal.

“We have posted another healthy quarter of broad-based growth led by a revenue increase of 3.2 per cent quarter-on- quarter in constant currency,” HCL Technologies CEO Anant Gupta said.

Customer acquisition momentum continues with yet another billion dollar quarter driven by strong growth in global infrastructure services at 16.9 per cent year-on-year and engineering and R&D services at 14.1 per cent y-o-y, he added.

“Going forward, our investments will continue in the three strategic markets of ITO, Engineering Services Outsourcing and the emerging Digitalization space which will enable a continued balanced business portfolio performance for the company,” he said.

Revenues from Europe grew 20.8 per cent y-o-y, while that from Americas grew 11.1 per cent during the said quarter.

Americas crossed the USD 3 billion in revenue milestone on LTM basis.

HCL Technologies added 11,631 employees (gross) during the September quarter taking the total headcount to 95,522.

It signed 15 transformational engagements with more than USD one billion of Total Contract Value in this quarter.

The company has declared an interim dividend of Rs 6 per equity share of Rs 2.

“HCL’s performance has exceeded the market expectations. It’s showing signs of healthy growth but not industry leading as yet,” Greyhound Research Chief Analyst and Group CEO Sanchit Vir Gogia said.

The company holds a strong foothold in infrastructure management which has been generating a steady stream of revenue for the company, he added.


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