Posts Tagged ‘Indian’

Waves come and go in India’s infotech roller-coaster

April 21st, 2014

Pessimism comes naturally some Indian IT-watchers. In the mid-1990s, there were those who felt India was basically a repair shop for the Y2K bug that was feared to hit computers in the year 2000- but did not.outsourcing62

Then came the Internet and a dizzy boom. However, before long the Internet “dotcom” bubble burst over 2000 and 2001, and along with it the telecom industry betting on the arrival of broadband had a meltdown.  But along came business process outsourcing (BPO) .

BPO gave rise to KPO (knowledge process outsourcing), involving deeper research skills, and KPO gave way to business process management (BPM) that involves blending in management skills with simple back-office work.

Social media, analytics and cloud computing (SMAC) is a new buzz term, and this is a new framework altogether. Last month, industry association Nasscom identified “CMO” (chief marketing officer) as a $37 billion (Rs 2.2 lakh crore) opportunity by 2020, and that would involve creative brand-building related work as well. CMO is a gauche term for what should be properly called digital marketing services.

But linguistic hair-splitting aside, it is another wave of opportunity for India.

Waves come and go in the IT  and IT-enabled services industry and each wave provides new opportunities to learn, new skills to be acquired, and new business models to be perfected. As I have seen over the past two decades, Indian IT’s booms are as unpredictable as the bumps.

Source:http://www.hindustantimes.com/comment/n-madhavan/waves-come-and-go-in-india-s-infotech-roller-coaster/article1-1210333.aspx

IT bigwigs TCS, Infosys, HCL, Wipro turn the corner on discretionary deals

April 21st, 2014

There is a common theme underpinning the latest quarterly numbers of the top four information technology companies – TCS, Infosys, WiproBSE -4.81 % and HCL TechnologiesBSE 0.64 %. The demand scenario for the Indian IT outsourcing industry is firm on account of rising expenditure on large, long-term contracts that are known as discretionary deals on account of their ability to improve the business process efficiency of the client.outsourcing54

Alook at the trailing 12-month data for these companies shows that after a depressed trend in FY13, the dollar-denominated topline growth resumed in FY14. For the sample of the top four IT players, aggregate dollar-denominated revenue growth decelerated to 9.6 per cent in FY13 due to a prolonged slowdown in Western economies, which forced clients to postpone projects. Growth sped up in FY14 as client budgets once again expanded. Revenue grew 12.7 per cent for the sample during the year. Though this is far below the peak growth of 25.7 per cent recorded in FY11, it seems to indicate that demand is finally picking up.

TCSBSE 0.75 % and HCL Tech retained the lead in terms of revenue growth for the fifth consecutive fiscal. It needs to be noted that HCL Tech’s fiscal ends in June. Revenue at TCS and HCL Tech grew 16.2 per cent and 14.1 per cent, respectively. Infosys, though lagging them, was able to jump back to double-digit growth of 11.5 per cent from 5.8 per cent in FY13. Wipro, on the other hand, reported a modest improvement in revenue growth at 6.6 per cent from 5 per cent a year ago.

The analysis of net profit growth shows that barring Infosys, other players were able to improve the net margin in FY14 from a year ago. For Infosys, it was a tough year with erosion in profitability, raising questions over its ability to manage growth without sacrificing quality. Its net margin narrowed to 21.2 per cent from 23.3 per cent in the previous fiscal. TCS improved its net margin by 130 basis points to 23.4 per cent whereas Wipro’s margin expanded 90 basis points to 18 per cent. A basis point is 0.01 percentage point.

The growth trend will continue to be non-secular among these players in the sense that TCS and HCL Tech have retained their lead in winning new deals and showing signs of robust growth ahead. In comparison, InfosysBSE 0.38 % and Wipro appear to be lagging. The counters of these companies may witness some selling in the near term considering the sharp increase in valuations over the past year. For instance, the trailing price-earnings ratio (P/ E) of Infosys shot up from around 14 to over 17 in the period. The P/Es of TCS, Wipro, and HCL Tech are 22.7, 18.4 and 17.3 in that order.

Source:http://economictimes.indiatimes.com/news/news-by-company/earnings/earnings-analysis/it-bigwigs-tcs-infosys-hcl-wipro-turn-the-corner-on-discretionary-deals/articleshow/34018243.cms

Indian IT firms making headway in continental Europe where large corporations are turning to them

April 14th, 2014

Indian information technology services firms are making increasing headway in continental Europe, a lucrative market where several large corporations are turning to them for the very first time.outsourcing48

The opportunity to trim costs, especially in the current tight economic situation, seems to have pushed large enterprises in France, Germany and Switzerland to take a closer look at Indian IT companies instead of competing local firms which have dominated so far.

For the Indian companies instead of competing local firms which have dominated so far.

For the Indian companies, contracts from continental Europe-based companies are expected to help them report higher sales growth and establish their presence in these largely untapped markets.

This year, when electrical gear maker Schneider Electric decided to renew a $1-billion (Rs 6,000 crore) technology contract it had given to local software provider Capgemini in 2004, the French company had Indian outsourcers in mind.

Schneider, which has never before outsourced technology to an offshore service provider, recently sent a team of 14 executives to Bangalore to negotiate with India’s top software services companies and outsourcing advisory firms.

“Corporations in France, Germany, Switzerland etc, most of them firsttime outsourcers, are now looking to work with Indian IT firms,” said the chief executive of one of the top 10 Indian tech firms on condition of anonymity as his company is currently in a preearnings silent period. “We get a feeling that it is the beginning of a new shift.”

A Schneider spokesperson confirmed that the company is currently “preparing renewal of the Capgemini outsourcing contracts”, to bring in cost-effective delivery models but said she does not want to comment on vendors “until the end of the re-compete process”. The Rueil-Malmaison, France-based company said it plans to work with a set of suppliers; not one IT exporter.

At least three more such contracts, each valued over $100 million (Rs 600 crore), are in the final stages of negotiations with Indian IT firms, industry sources said. Interest from Continental Europe comes as Indian software services company are wooing enterprises in that market by setting up software delivery centres and hiring local executives who can win deals with local businesses and governments without the help of a translator.

Another company—one of the largest commodity traders in Switzerland-—has never outsourced to an offshore service provider, but is in talks with IT services companies from India as well as the United States, according to industry sources with direct knowledge of the negotiations.

Further, Wallenius Wilhelmsen Logistics (WWL), a Norwaybased logistics company, plans to outsource portions of its IT work and is currently in talks with India’s top software providers. At least two automotive component makers from Germany, which are looking to trim costs, are in talks with outsourcing advisory firms that can help find a technology outsourcing firm. WWL did not respond to an email questionnaire.

Although Europe has been a leading destination for Indian IT services companies for two over two decades, for India’s leading software exporters TCSBSE 1.75 %, InfosysBSE 0.91 % and WiproBSE 1.34 % success in that market has so far been limited to the UK and Nordic countries, such as Denmark, Finland and Sweden. Indian companies say they often face trust issues with large customers in Continental Europe due to language and cultural differences.

Source:http://economictimes.indiatimes.com/tech/ites/indian-it-firms-making-headway-in-continental-europe-wher-large-corporations-are-turning-to-them/articleshow/33713207.cms

Why Airtel changed IT outsourcing strategy that impacted IBM

April 4th, 2014

Indian telecom service provider Bharti Airtel has changed its IT outsourcing strategy that impacted enterprise IT major IBM in a big way. But the deal announced on Wednesday did not surprise many infotech analysts.outsourcing38

InfotechLead.com interacted with select IT analysts on the IBM-Airtel IT deal. Several analyst firms did not comment because this is a company policy issue. Sharing some of the comments here:

Obviously the scenario of the market nowadays is not the same than in 2004.

Contracts of this length (10 years) are currently not that common, companies don’t want these long term attachments anymore – with the IT market changing faster and faster, they prefer to obtain smaller contracts that enable them to renegotiate more frequently in order to reduce costs.

Regarding IBM getting just 50 percent of the contract, this is the new reality of the market. Indian IT companies are now much more structured and have improved their service quality in the past years, while they keep offering lower costs compared to big traditional IT companies such as IBM.

Airtel has taken a pragmatic and obvious approach for the contract with IBM as business priorities in the telecom industry has changed substantially over the last 10 years.

Revenue sharing model is fading considering the size of Bharti Airtel. The operator had 4 million subscribers when the revenue sharing based contract with IBM was signed in 2004. The main objective for operator at that time was to scale up operations to support rapid increasing subscriber base.

However, it has grown more than 60 times in subscriber base since 2004 and now the scale is too big for Bharti for a revenue sharing model. Although not disclosed by IBM/ Bharti, we believe the revenue sharing component must have reduced significantly due to the above reason.

IBM Bharti Airtel IT deal
Rising customer expectations and economic challenges demand new vendor relationships. Recent Forrsights data indicates that around 90 percent of Indian firms have a top business priority to address the rising expectations of customers and improve customer satisfaction.

The declining ARPU, rising customer expectations coupled with tough economic situation in the country has forced operators to look beyond “subscriber base” theory to become “customer obsessed” to improve bottom-line growth.

While Airtel views IBM as a strong established IT partner to run and manage infrastructure, the operator appears to be in the need of new business technology partners to help engage customers in the key moments of their day with the ultimate goal to serve and retain them.

Strategic Outsourcing (SO) is dying a natural death and being replaced by Cloud and Managed Services – this impacts both deal size and term. Strategic outsourcing deals are increasingly being replaced by cloud and/or managed services delivery methods to leverage the cost and delivery benefits arising out of these delivery models.

This deal is a classic example where the end-user organization – Bharti Airtel in this case – is leveraging these newer delivery models to better manage money and time spent on servicing its existing infrastructure and application portfolio.

The deal focuses on the customer experience (read analytics) to help Airtel launch new products and services. Analytics and Big Data capabilities have been proven to add significant business value for telcos globally.

IBM India is expected to use its analytics portfolio spanning Unica, SPSS, Cognos among others to help Bharti Airtel enhance customer experience and launch new products and services. While this is surely a lofty task but one of the key reasons that makes this ‘a winning deal’ for IBM India.

Though IBM has refused to comment on the deal size, Greyhound Research estimates the deal has been inked in the range of $750 – $850 million for a period of five years. Greyhound Research predicts the deal to touch $1 billion over the next five years with incremental focus on Analytics and Big Data.

Let’s compare this deal in the right context – Bharti Airtel of 2014 is not the same organization as 2004. At the time when this deal was inked in 2004, Bharti Airtel was in a hyper growth mode and needed extensive support from an external IT vendor to support the rapid growth and also build internal capabilities to support the IT setup.

Bharti’s business has grown 10x over the past decade India (remember, this renewal only impacts the IBM Bharti deal in India and not other international markets) – between 2004 and 2014, the subscriber base has grown from 4 million to 200 million. The company is now in a relatively mature stage where it needs to effectively run (read maintain) what it has built as part of its IT setup over the past decade and only add incrementally.

Gartner said IT services is forecast to total $964 billion in 2014, up 4.6 percent from 2013. IT services buyers are shifting spending from consulting (planning projects) to implementation (doing projects), and Gartner analysts expect steady growth in the IT services market as the economic outlook, and along with it investment sentiment, improves.

IBM will follow up with other IT deals. Will more telecoms follow Airtel that is building in-house IT capabilities to reduce cost burden? It will be a big for IT companies such as IBM, HCL Technologies, Tech Mahindra, Wipro, TCS, etc.

Source:http://infotechlead.com/2014/04/03/airtel-changed-outsourcing-strategy-impacted-ibm-21471

Wipro gains at IBM’s expense in Bharti deal

April 3rd, 2014

Indian IT companies have taken big chunks of a large technology outsourcing contract that has been sliced up by Bharti AirtelBSE -1.17 % into four parts, leaving IBM with only a portion of a deal it completely owned for a decade. Outsourcing36

WiproBSE 0.03 % is a big beneficiary from the renegotiation of what used to be regarded as the defining technology outsourcing contract in India – at nearly $300 million a year over 10 years, it represented a bold choice by Bharti Airtel to entirely outsource its IT needs, and for IBM it was its most lucrative deal in India.

A Mumbai-based company is close to winning one of the carved-out portions while Bharti Airtel is yet to take a decision about a part dealing with its wireline operations, according to several people familiar with the negotiations.

In a joint statement on Wednesday, IBM and Airtel said they have signed a new pact, this time for five years, with Big Blue selected to manage the IT infrastructure and applications for Airtel’s operations in India.

Sources said that the new deal is worth $500-550 million ( 3,000-3,300 crore) a year for IBM. Moreover, while under the previous contract IBM would get a share of annual Bharti Airtel revenue, the new one is based on usage.

“Wipro has won the network maintenance part of the contract,” a highly-placed source with direct knowledge of the matter told ET. The source declined to give the size of the deal that Wipro had won and ET could not independently ascertain the size of the deal. Wipro declined to comment.

The Airtel-IBM contract has acquired a high profile for several reasons. Besides the nature of the deal and its size, it is a marquee one for the US company – it was a forerunner to the two other ‘strategic outsourcing’ contracts from Idea CellularBSE 0.52 % and Vodafone. Analysts are of the view that IBM will have a lot of convincing to do when the deals with Idea and Vodafone come up for renewal in 2017 and 2019, respectively. Such was the importance of the Airtel contract for IBM that its CEO Virginia Rometty visited India to persuade Sunil Bharti Mittal. The previous 10-year deal lapsed on March 31.

A source told ET that the fundamental difference between the last time and the current deal was that the telecom giant would retain significant control over the operations. “Airtel wants to chart out the strategy and the direction based on the company’s overall goals and targets, it wants to rely on its IT partners only for execution,” the person said.

Airtel declined to comment on whether Indian IT firms had won parts of the contract.

Source:http://economictimes.indiatimes.com/tech/ites/wipro-gains-at-ibms-expense-in-bharti-deal/articleshow/33150688.cms

Cloud, mobility might eliminate need for infra and ADM outsourcing: Samiron Ghoshal

March 28th, 2014

Almost every IT service provider is rushing to be part of the ‘digital transformation’ within the clients as they focus on the social, mobility, analytics and cloud (SMAC) suite of technologies.Outsourcing27

Samiron Ghoshal, partner and leader (IT advisory services) at Ernst & Young, talks to Bibhu Ranjan Mishra about the shift that is happening in the market place and how well-positioned the Indian IT services providers are. Excerpts:

Most service providers have been aggressive on SMAC, showing this is the way to go forward. Have Indian enterprises started embracing digital transformation and SMAC?

To be honest, there are various parts to it. In technology, we have terms called ‘leading edge’ and ‘bleeding edge’ technologies. Typically, if you look at the spent pattern and size in an emerging market, people probably don’t spend money that easily on bleeding-edge technologies unlike in developed markets.

However, there are exceptions. In the Indian context, we are seeing players in areas such as financial services and healthcare adopting cloud and mobility solutions quite faster.

Do you agree with the perception that cloud and mobility restrict service providers’ ability to offshore is low and the deal sizes are small?

Offshore comes into the picture wherever there are building blocks in the technology space which can be done out of sight. Typically, in any leading edge area, the technology lifecycle gets shorter.

Secondly, a clear demarcation of blocks which can be offshored is difficult. If you have to make a mobility solution which does not have the past and future, and you have to design and build it from the scratch, it becomes difficult to offshore.

Where does the Indian players stand in this whole game?

In our IT industry, ADM (application development and maintenance) and infrastructure services account for 80-85 per cent of the overall work. So we are still playing in that nuts and bolts area. With cloud and mobility, that whole model is going to change.

For the Indian players to move up the value chain in the whole pyramid, they need to be there right from the beginning instead of waiting for the SAPs, Googles, Oracles and Amazons of the world to create the model and then look for offshorable elements after five years. It, in fact, requires a significant amount of investments in terms of people, process and skills.

What is this model?

The biggest change that is happening today in the technology spend area globally is the empowerment of the business users to make decisions, bypassing the CTO (chief technology officer). Tomorrow, with cloud and mobility, applications are going to be available on a subscription basis – the way you buy electricity.

That means, a lot of these apps will be front-end enabled where employees will buy their apps. So, the play is changing. Tomorrow, there may be so big infrastructure or apps to maintain. This would put a big question mark on the future of the IT players who just focus on the bottom of the demand pyramid.

Most Indian IT players believe the demand for offshore IT services is bouncing back. Is it so?

Demand is bouncing back in the medium term. There is also pent-up demand since many of the Fortune 1000 companies in the developed markets did not spend that much during the last five years, because of bad times. This will be there at least for the next five to seven years.

But there is certainly a change. Before Y2K, IT was just about body shopping. After Y2K, the world proved that offshoring-based development and maintenance can be successfully done. That is when Indian companies took off. The next phase is starting. If somebody does not align to it, you don’t know what the shape will be after five years.

Source:http://www.business-standard.com/article/companies/cloud-mobility-might-eliminate-need-for-infra-and-adm-outsourcing-114032700396_1.html

How Indian BPOs are trying to beat ‘slowdown’

March 25th, 2014

Faced with the chilly wind of margin declines and slower growth, Indian outsourcing firms are looking to add higher value services to their portfolio even as they move more work to smaller towns and cities to cut costs.Outsourcing20

Pricing troubles in the sector began in 2006 with the entry of numerous players and came to a head in 2008 after the global economic crisis which saw salary levels in the West drop, reducing the gap with what is paid in India. Outsourcing advisory firm Everest said overall BPO services prices fell 20% to 24% during the period 2006-2013.

“All BPO players have experienced margin compression,” said Smita Gaikwad , global head of marketing at First-Source Solutions, one of the top BPOs in the country.

“The diminishing labour arbitrage story has definitely had an impact on the price.” Gaikwad said the industry had about 40% growth in the early 2000s but it is now only 10-13 %. Making matters worse is the introduction of automation.

Increasing scale Software robots that can replace humans not only have driven prices down but also eliminated the need to send work outside.

As a result, BPOs have seen prices fall by as much as a fifth as clients look for more costs-savings and expect more automation in their contracts. Much of the pressure has fallen on companies that provide contact centre operations, in which voice is often viewed as a commoditised, low-margin business that requires greater scale.

Some have increased scale through acquisitions — the voice space has seen two high-profile mergers in the past 12 months. IBM sold its contact centre Daksh business to Concentrix for $505 million (Rs 3,075 crore), while US-listed Convergys bought rival Stream for $820 million (Rs 5,000 crore).

While scale allows contact centre companies to offset the lower margins to a certain extent, most players are looking at servicing high-value business that are less susceptible to price fluctuations, such as insurance, finance or accounting.

“Price reduction has impacted contact centre BPO more than finance and accounting or industry specific services such as insurance claims processing,” said Cathy Tornbohm, vice-president at research firm Gartner.

“Finance and accounting BPO and other industry specific services are able to fend off some price pressure due to adding specialised services.” Rakesh Khanna, chief operating officer of US-listed IT firm Syntel, said when his firm launched BPO services a few years ago, it consciously avoided voice.

“We chose a path of highend transaction business — helping our customers manage risk. Hence, we don’t see price decline that many BPO players are experiencing,” said Khanna. A number of BPOs, such as Aegis , Serco and WNS, are looking at smaller cities and towns.

“Tier 2 and Tier 3 cities are increasingly being seen as the growth engines of the future,” said Keshav Murugesh, group CEO of US-listed WNS Holdings, said in an interview at the Nasscom India Leadership Forum last month. The companies are also adding services that can help clients tap new revenue streams while the BPOs take a slice of the additional revenue earned. FirstSource and WNS have been taken the lead in this move. But it’s automation that the industry is worried about most.

“Beyond breaking through the IT development bottleneck, the use of software robots to handle routine business processes has another attraction: it allows enterprises to reduce their reliance on offshore outsourcing,” said James Slaby, research director in charge of sourcing risk and risk strategies at advisory firm HfS in a report last year.

“The economics are eye-popping: while an onshore (full-time employee) costing $80,000 can be replaced by one offshore for $30,000, a robot can perform the same function for $15,000 or less – without the drawbacks of managing and training offshore labour.”

Source:http://timesofindia.indiatimes.com/tech/tech-news/How-Indian-BPOs-are-trying-to-beat-slowdown/articleshow/32602059.cms

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