Posts Tagged ‘India’

India, China still the top out sourcing destinations

March 31st, 2014

India is the clear global leader by revenue, while China is the most serious challenger by scale, according to a study of nine Asia-Pacific (APAC) countries as potential offshore service locations.Outsourcing30

Bangladesh, Indonesia and Vietnam are continuing to gain regional traction for offshore service delivery, while more mature countries, such as Malaysia and the Philippines, are refocusing on their core capabilities. The capabilities are higher-end IT infrastructure, help desk, application and business process services, the study by Gartner said.

Historically, cost attractiveness, quality of service and scalability were key drivers for using Asia as an offshore outsourcing destination. However, in the last few years, growing concern about high inflation, attrition and quality lapses in offshore and nearshore locations have been driving chief information officers to consider alternatives such as low-cost onshore sourcing and sometimes crowd-sourcing.

Despite these trends, India and China are still among the most popular destinations for offshore services. Over 48 per cent and 45 per cent of clients surveyed in 2012 were using these countries for nearshore or offshore outsourcing respectively.

Countries in APAC offer cost-competitive, typically stable and scalable locations for offshore IT and business process services, but Latin American and Eastern European countries now compete more aggressively for offshore deals, it said.

The currency fluctuations and rising delivery costs are also an issue for Asia, it added.


Lack of technical manpower & infrastructure hurts IT growth in Northeast

February 10th, 2014

Narendra Modi may want information technology companies to flock to the Northeast but software services firms are saying the BJP prime ministerial candidate’s wishes are unlikely to be fulfilled any time soon.outsourcing58

The absence of technical manpower , exacerbated by the lack of infrastructure, prevents development of IT in the Northeast, insiders in India’s $108-billion outsourcing industry said, reacting to Modi’s exhortation. “Why can’t Manipur be made into an IT hub,” Modi asked, in a speech in Imphal, blaming the Congressled government for the Northeast’s woes, including crumbling infrastructure and persistent “insurgency .”

“There is no harm in considering the Northeast. In fact, wherever IT industry goes, it gives people highpaying jobs,” said Rostow Ravanan , chief financial officer at Bangalore-based Mindtree, which is setting up its largest training centre in Bubhaneshwar. However, “at this point of time, I don’t see many IT firms setting up their centres in the Northeast because there aren’t too many engineering schools,” Rostow Ravanan said.

The reasons for the IT industry shunning the region are fairly simple , according to industry insiders: “It is no rocket science … beyond the existence of an airport, if there aren’t good schools, hospitals and entertainment that the IT talent looks for,” the region won’t attract the industry, said one executive, who didn’t want to be named. “Forget the Northeast, there’s hardly any IT presence in Kolkata ,” the person said.

Sops Key for Expansion for Technology Firms

As long as smaller cities don’t offer the type of availability of talent and infrastructure needed for the IT industry, young people will continue to flock to bigger centres such as Bangalore or Hyderabad. “It’s primarily because of the physical and social infrastructure and the availability of talent and opportunities. The opportunity actually feeds off on the first three and then it becomes a cycle … because there is a lack of opportunity the other three don’t develop, so it’s a little bit of a tricky situation,” the person said.

This means, once people decide not to move, then it’s impossible to achieve scale in an industry such as the IT sector. Given the right incentives, however, not just India’s large technology firms but even midsized companies would be willing to expand to tier-2 cities, which often bring their own advantages, such as people staying longer at their own advantages, such as people staying longer at their jobs, being more satisfied as they stay closer to their families and so on.

The lack of technical manpower is the single most important reason for the industry to shun the region, and concerns such as less-than-stable governance seem to be more secondary. “The challenge lies in attracting large pools of technical manpower in the Northeast ,” said Ganesh Natarajan, CEO of Pune-based Zensar Technologies. “The Centre should first set up four large universities in Guwahati, Shillong, Manipur and Arunachal, focused on employable skills,” Natarajan said.

Between 2011 and 2021, the region will have close to 17 million job seekers and only 2.6 million jobs, half of which will be in Assam alone, according to a January 2013 report by the Indian Chamber of Commerce and the consultancy PricewaterhouseCoopers . The National Association of Software and Services Companies, the industry’s lobby, has tried getting the central government to consider a two-tiered incentive policy to encourage the IT industry to push deeper into smaller cities and towns. Such a policy is yet to materialise.

Incentives could include support on capital investments, tax holidays and employment-generation based subsidies. India could even follow what China is attempting in trying to develop its interior provinces , where for each person a company hires, the government offers some incentives , industry insiders said. One executive, who didn’t want to be named, said “we don’t need incentives to work in Hyderabad, Bangalore or Chennai anymore.

The industry needs incentives to work out of a Bhopal or Bhubaneswar and then gradually even a place like Guwahati may start looking attractive, but by choice I have no illusions about the industry moving to the Northeast anytime soon.”


Why BPOs are ‘dumping’ India and Philippines

February 7th, 2014

Business process outsourcing companies, specifically those in the contact centre space, are reversing the trend of moving most outsourced work to low-cost locations such as India and the Philippines, chasing higher-value business in exchange for working closer to their clients.

“On-shore” and “near-shore” presence is increasingly becoming an important area of differentiation that is helping those vendors who can demonstrate the capability garner a larger share of business.

Outsourcing13In the 2008-2010 period, more than 71% of the contracts were delivered mainly offshore. In the 2011-2012 periods, that fell to 59%, according to the latest data available at advisory firm Everest Group. And the trend is further picking up.

FirstSource Solutions, Aegis, WNS and Serco are among firms that have been spending on big-build delivery in places such as South Africa, Eastern Europe, Scotland and the United States and more investments in this space are be expected. FirstSource is looking at Latin America as a possible geography to expand to and service US customers from, CEO Rajesh Subramaniam said.

“Having a flexible set of delivery locations is often in a provider’s interest so that it can accommodate different client requirements. Where work is moving back on-shore or near-shore it is primarily to try and improve the quality of customer service – typically with the use of native speakers,” Cathy Tornbohm, analyst with technology consultancy Gartner, said.

The pace of the global economic recovery is also an important factor is driving work back to the home markets, particularly from clients who want to cut costs but are unwilling to send the work out of the country.
“In this initial recovery, companies are attempting to investigate additional avenues to variabilise cost by additional outsourcing, although not necessarily off-shoring,” Sandip Sen, CEO of Aegis, in a recent interview.

“BPO is the perfect answer to variabilise cost and improve efficiency, but with customer experience being the key focus it also is critical to deliver from any shore,” Sen said.

egis has about 5,000 employees in the US and over 2,000 employees in Australia and New Zealand. The company will be tripling its headcount in the UK to 1,500 and is considering a near-shore acquisition to serve the US market, a source with direct knowledge of the matter told ET.

Sen had declined to comment on this.

On-shore expansion is increasingly rising as a priority for BPO firms as such operations are becoming a major selling point to win new deals, which are increasingly thin on the ground in theBPO sector.

“Typically onshore plays an important role and does tend to play kingmaker in moving work offshore,” Susir Kumar, CEO of the Global Services division at Serco told ET.

It’s not just the quest for a better accent on the other side of the phone line that is driving the shift. As companies target new markets and strategic, higher value work, new models are evolving to cope with the shifts in business.

An example that combines on-shore and offshore delivery is the Finance and Accounting (F&A) shared service model. Such a model leverages onshore delivery from a centre in Eastern Europe, for instance, to cater to the language requirements while the bulk of the heavy lifting in F&A is provided from an offshore delivery centre, say in India or Sri Lanka.

“Such models will only continue to evolve to meet the growing needs of globalisation,” Keshav Murugesh, CEO of US-listed WNS, said.


Infosys begins moving work out of US over immigration Bill fears

January 8th, 2014

Infosys has started moving onsite work in the US to India or near-shore destinations in a move to de-risk itself in case the dreaded immigration Bill becomes law.outsourcing39

Sources in the company confirmed to Business Line that some cost centres, such as general, administrative and sales-support functions, are beginning to be off-shored.

There is also a possibility that the level of off-shoring of services, such as application management, infrastructure management and business process outsourcing, will be increased. This strategy is also expected to lower dependence on the low-margin onsite business.

Most of the off-shoring is being carried out after consultations with clients, said sources.

Congress debate

The move assumes significance as US Congress is expected to take up the Bill for discussion soon. The Senate has already passed the Bill, which seeks to increase visa costs as well as salaries of H1-B visa holders, making it unviable for companies such as Infosys to carry on business in the US.

Over 65 per cent of the revenues of the domestic IT and ITeS industry comes from US clients. Infosys is the second-largest employer of H1-B visa professionals in the US.

IT industry lobby Nasscom has come down heavily on provisions in the Bill, stating that they amount to non-tariff barriers.

An analyst with Prabhudas Lilladher said the immigration Bill continues to be the source of uncertainty for offshore vendors, such as Infosys and TCS. The margins of Indian IT service vendors will get impacted if any version of the Bill increases visa costs or mandates more local hiring.

However, Vintha Khatwani of Kotak Securities said that while there is some unease over the proposed Bill, the impact will be limited.

Lobbying Congress

Last year, a group of eight Indian IT companies, including Infosys, formed a lobby to influence US Congress to drop crucial clauses in the Bill. Infosys had also said that it is in discussions with clients for a contingency plan in case the immigration Bill becomes law. The company had said it was examining the option of off-shoring work in case the Bill became law.

In fact, it has started implementing the strategy even before US Congress has taken the Bill up for discussion.


IBM India profit falls, tax woes continue

January 6th, 2014

International Business Machines Corp.’s (IBM) India unit, which over the past decade has risen to dominate the domestic technology services market, reported a 20% drop in net profit for the year ended March 2013, weighed down mainly by foreign exchange losses and depreciation in value of investments.Outsourcing16

IBM India is also contesting income tax claims amounting to at least Rs.6,857 crore. This includes about Rs.1,500 crore of pending claims, some dating back to 1997-98, according to IBM’s annual report for 2012-13, and a separate tax notice of Rs.5,357 crore in November accusing it of under-reporting profit for the 2009 fiscal year.

The company has separately cleared disputed tax claims amounting to Rs.1,421.8 crore.

IBM’s India revenue for the year ended March 2013 rose 12% to about Rs.19,924 crore (about $3.2 billion), driven mainly by healthy spending from top clients such as Bharti Airtel Ltd, Vodafone India Ltd and Indian Railways.

Profit after tax, however, fell nearly 20% to Rs.1,218.2 crore from Rs.1,520.8 crore in the previous year, IBM said in the documents that were posted on the corporate affairs ministry’s website on 31 December.

“We continue to make significant progress on our 2015 growth initiatives, driving leadership for IBM in the marketplace,” IBM said in its annual report.

In 2012-13, IBM India also detected an instance of fraud by some employees who overstated revenues amounting to Rs.61.1 crore from various customer accounts, according to the documents. The company incurred a loss of Rs.12.9 crore as a result, which it adjusted in its balance sheet, IBM India’s financial auditors said.

Mint first reported in July that IBM had sacked some two dozen employees in India for overstating revenue by at least $8 million to meet financial targets for the year ended March 2009.

In 2013, IBM India executives Ganesh Margabandhu, K. Raghunandan, Kalpana Margabandhu and former human resources head Chandrasekhar Sripada resigned from the company’s board. The reason for their departures was not specified by IBM.

IBM otherwise got a clean chit from its financial auditors Price Waterhouse and Co. on its key accounting statements and practices.

“Except for one instance of fraud involving improper and unauthorized actions of certain employees of the company resulting in overstatement of revenues aggregating to Rs.611 million and cost deferral of Rs.57 million and consequential loss amounting to Rs.129 million which was detected by the company and adjusted in these financial statements, we have neither come across any material instance of fraud on or by the company,” chartered accountant Pradip Kanakia of Price Waterhouse said in the documents.

When contacted with an email questionnaire, an IBM spokesperson said the company did not have anything further to comment or share.

IBM, which is currently making significant investments in the area of cognitive computing to fuel its next phase of growth globally, also hinted at larger scale deployment of its Watson supercomputer—famous for defeating humans on the US game show Jeopardy—to serve clients in India and Asia.

In an interview in August, IBM India chief Vanitha Narayanan had said Watson might be launched in India soon. IBM currently has a team of software developers for Watson in India, the only such centre the Armonk, New York-based company has outside its US headquarters.

Cognitive computing refers to advanced computing systems or machines that can intuitively learn and pickup functions based on everyday experiences.

Over the last decade, IBM has risen to dominate and become the top technology services vendor in a domestic market that is home to the likes of Tata Consultancy Services Ltd and Infosys Ltd. IBM, the world’s top computer services firm, replicated the global delivery model perfected by Indian software exporters and built up a workforce of over 150,000 employees in India who maintain software applications and back-office projects, among other things.

IBM does not provide a region-wise breakup of its employees in its financial reports—the employee figures for IBM in India were obtained from brokerage and industry estimates.

In 2004, IBM won a landmark $750 million outsourcing contract from Bharti Airtel Ltd, India’s largest telecom services firm, which set a trend among all Indian telecom firms such as Vodafone and Idea Cellular to outsource their non-core processes. Over the years, IBM has used its relationship with Bharti Airtel to gain more business from other top firms. With Bharti Airtel’s rapid growth over the last decade where its subscriber base has risen from 8 million to over 250 million, IBM’s share of revenues from the revenue-sharing contract has also increased exponentially. The Bharti Airtel contract, which is in the final stages of negotiation for renewal, generates $250-300 million of annual business for IBM.

IBM now is one of the top five information technology services firms operating out of India based on its latest revenues.

For IBM to maintain its dominance in the Indian market will be tough going forward, given competition from faster-growing homegrown software firms such as TCS and Infosys, experts said. Technology researcher Gartner Inc. has forecast that the domestic Indian IT market will touch $71.3 billion by 2014, with most of the growth driven by IT services.

“The fundamental problem for IBM is that globally they are the largest service provider, (but) the market is maturing—many of the strategies that got them where they were have now been emulated. They have a very strong position in the Indian market, but others are attacking them— so it’s going to be very hard for them to grow fast in India now,” said Peter Bendor-Samuel, chief executive of outsourcing consulting firm Everest Group.


Firstsource staff in India to lose jobs to Philippines

December 26th, 2013

Firstsource SolutionsBSE -0.24 %, the Indian business process outsourcing provider that is adding staff at its Cebu, Philippines centre to 500, will eliminate at least as many jobs in India as part of a turnaround plan.Outsourcing25

Mumbai-based Firstsource’s exposure to telecom clients, hit by the global slump, had dragged the company’s performance down, prompting it to cut costs, discard some clients and chase business from more profitable segments such as healthcare.

“The company was in a big mess. Currently, we are in the consolidation stage where we get rid of customers, employees and infrastructure that do not align with our business,” Rajesh Subramaniam, CEO of Firstsource, told ET. “We reduced almost 800 to 900 people last quarter. This quarter, there will be further reduction and then we will take a call next year,” he said. FirstsourceBSE -0.24 % is adding jobs at its centre in Cebu, Philippines, to raise strength there from 110 to 500, local media reports said earlier this month, citing country head Kiran Kosaraju. The company employs about 30,000 staff globally, two-thirds of them in India.

Mumbai-based Firstsource’s exposure to telecom clients, hit by the global slump, had dragged the company’s performance down, prompting it to cut costs.
Firstsource, which was acquired by the RP-Sanjiv Goenka group last year, is also paying off a $275-million (Rs 1,700-crore) loan it had taken to finance an acquisition in the US in 2007-08. The company sold that unit in 2011.

Over the past few quarters, Firstsource has exited loss-making customers, mostly from the telecom space, in the domestic and international business. Subramaniam said the company will shed more clients or certain lines of work with these clients to improve profitability in the coming fiscal year.

“Growth rates may fall, but my profitability will improve by 250 basis points compared to last year and on a run rate basis it sets me up for another 150 to 200 basis points growth next year.”

In the first and second quarter of this fiscal year, Firstsource reported better-than-expected profits and made $22.5 million (Rs 137 crore) in quarterly repayment of its outstanding debt. The company’s stock has gained over 60% on the Bombay Stock Exchange over the last year.

Subramaniam said US President Barack Obama’s new healthcare insurance law will add momentum to the company’s turnaround plan, as hospitals and insurance firms spend more on technology and outsourcing.

“In the next three years, the healthcare business should be a $300 million business; today it’s about $150 million. We would have done badly if we don’t achieve that,” he said.

Firstsource got almost a third of its Rs 2,844 crore in revenue for the year ended March 2013 from insurers and hospitals.

India’s $108-billion IT services and BPO industry expects to benefit from increased spending among large US health insurers and hospital as they gear up to meet the requirements of Obamacare, America’s overhauled healthcare law.

According to the US Department of Health and Human Services estimates, healthcare exchange call centres are expected to receive 42 million calls from insurance buyers this year.

“This business will keep growing at a faster pace in the coming years. We are in a great spot as far as healthcare sector is concerned,” Subramaniam said.


Patni scions Arihant and Amit betting big on data analytic startups in India

August 29th, 2013

Patni brothers – Arihant and Amit – are setting up a platform that will incubate and invest in data analytic startupsin India. The venture, Hive Technologies, will be modelled on a similar US-based initiative, in which the Patnis hold a stake.

The Hive in Silicon Valley offers office space, seed financing of up to $1.5 million (about Rs 10 crore) as well as technology and business support for data analytic startups. It is co-founded by Sumant Mandal, a managing partner at venture capital firm Clearstone Venture and TM Ravi, former chief marketing officer of data analytics firm IronMountain.

The Patni facility in Bangalore, which is due to come up in the next two months, will invest $200,000 to $2 million (about Rs 1.3-13 crore) in data analytic startups that already have revenues and customers.

“Our ambition is to capture the new wave of technology,” said Arihant Patni, 37, a chemical engineer from the University of Pennsylvania. The brothers, whose father Gajendra Patni is the eldest of the three co-founders of Patni Computers, had earlier launched Nirvana Venture Advisors, a $75-million fund focused on internet ventures. Founded in 2011, the fund invested in a number of ventures, including education firm YourNextLeap.

“We earlier started a sector agnostic fund, but later realised, we could not differentiate ourselves,” said Patni. “Our aim is to create at least three big data startup successes out of India in the next few years.”

Industry experts said it makes sense to focus on big data startups. “A lot of companies were formed on top of the database revolution like SAP, PeopleSoft, Siebel Systems, Business Objects; there will be many companies formed on top of the Hadoop and big data revolution,” said Amr Awadallah, cofounder and chief technology officer at US-based firm Cloudera.

The Patnis plan to invest in four to five startups every year over the next two years, with an exit horizon of eight to 10 years. They are scouting for big data analytics startups focused on the US market and with expertise in such areas as telecom, fraud detection, social media and customer relationship management.

Arihant Patni, who earlier founded legal process outsourcing company Bodhi Global Services, is currently managing director of Patni Financial Advisors, a wealth management company that advises high net-worth families on a wide range of investment options.

“Ten years later, I should say I have created three valuable, credible organisations that I am proud of,” he said.


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