Posts Tagged ‘Indian’

Why Indian IT firms want to shift outsourcing projects from offshore to onshore model

June 15th, 2015

With the advent of automation at the heart of India’s $146-billion information technology industry, the sector’s biggest customers are starting to rethink their strategy around outsourcing and debating whether to shift some outsourcing projects onshore – a development that has the potential to make the offshoring versus onshoring debate irrelevant. Outsourcing15

With automation having the potential of reducing costs by as much as 80% in commoditised service lines such as computer infrastructure management, customers of Indian IT are starting to initiate conversations around whether they can move more projects to onsite locations, without significantly disrupting the traditional offshoring labour arbitrage model of Indian IT in the near term.

“When you have the potential to automate certain projects, what difference does it make whether that project is onshore or offshore? It makes that debate irrelevant,” said a chief information officer of a European bank that outsources projects to one of India’s top three software firms. He requested anonymity as these discussions are private and confidential. The development, if it kicks off consistently, will signal a considerable shift for Indian IT firms such as TCSBSE -0.17 % and Infosys, which have for years thrived on the offshoring model where they built large campuses to house thousands of engineers to help bring down the cost of software development and maintenance.

“After more than a decade of achieving value through the offshore labour arbitrage model, one would think that mature organisations that have built GICs or captives, or organisations with extensive use of third-party outsourcing providers, would be at peace with the model. We expected them to move to a model of arbitrage plus automation,” said Peter Bendor-Samuel, CEO of outsourcing advisory Everest Group, in a blog post last week. “But the level of peace and comfort with offshore arbitrage is much less than we expected, and companies are expressing their desire to use robotics automation to repatriate their work,” he added.

The emergence of robotics automation, as has been widely reported, has the potential to disrupt the traditional “pyramid model” of Indian IT. Recognising the need to gain an edge in the battle for automation, the sector’s top companies such as TCS, US-based Cognizant and InfosysBSE 0.70 % are investing heavily on building tools and platforms that can afford large-scale cost benefits to demanding customers who are tightening technology-spending budgets with each passing year.

For instance, Infosys’ new automation platform has the potential to generate productivity improvements of about 40-50%, Infosys’ head of platforms Abdul Razack said in an interview last week. Similarly others like IPSoft’s cognitive computing system Amelia has the potential to perform routine, commoditised tasks at a fraction of the cost and time it takes a human engineer.

The fact that the cost of automating software services has come down rapidly over the years is also playing its part in this debate. “Previously, about 10-15 years ago, the cost of automation was much much higher – now that those costs have come down, you can afford to keep more projects onshore,” said Sid Pai, Asia-Pacific head at outsourcing advisory firm ISG.

To be sure, this does not mean that customers will move work away from third-party vendors such as TCS and Infosys. What is likely to happen is what is commonly referred to as “rebadging” — the process where third-party vendors take over the assets of a customer and replace personnel with their own staff, experts say.

Source:http://economictimes.indiatimes.com/tech/ites/why-indian-it-firms-want-to-shift-outsourcing-projects-from-offshore-to-onshore-model/articleshow/47593595.cms

US government goes tough on Indian IT outsourcing; deals with Disney, Fossil under lens

June 15th, 2015

After reports that the US government is investigating an outsourcing contract involving utility firm Southern California Edison and India’s largest software exporters, Tata Consultancy Services and Infosys, similar pacts signed now or recently are coming under the scanner, people familiar with the matter said.Outsourcing13

The latest contract to be scrutinised is one with Walt Disney, which recently signed a deal with US-based Cognizant Technology Solutions. Other recent deals with companies like Fossil are also being investigated, people familiar with the probes said.

On Sunday, IT industry body Nasscom said an investigation could have long-term ramifications on future contracts between US corporations and Indian IT firms and that it would intensify efforts to resolve the issue. “Undoubtedly (these probes) would have a damaging impact on future business. It is a serious concern,” Nasscom president R Chandrashekhar told ETon Sunday.

“This has the potential of seriously destabilising the way the sector does business…and frankly, we are also dismayed by the way a hostile business environment is being created,” Chandrashekhar said.

Cognizant did not immediately respond to an email seeking comment. Indian IT companies have vehemently denied wrongdoing.

On Sunday, communications and IT minister Ravi Shankar Prasad told PTI the government would intervene in this issue of alleged visa violations if the need arises. He said the government was confident that TCS and InfosysBSE 0.78 % would address the matter.

The US Labor Department plans to investigate whether top outsourcing corporations can use H-1B visa workers to replace fulltime technology workers, according to US media reports last week, citing Senators Dick Durbin and Jeff Sessions.

“A number of US employers, including some large, well-known, publicly traded corporations, have laid off thousands of American workers and replaced them with H-1B visa holders. To add insult to injury, many of the replaced American employees report that they have been forced to train the foreign workers who are taking their jobs,” the senators said.

Southern California Edison laid off about 500 workers, beginning August last year, and replaced them with H-1B visa holders from TCS and Infosys.

India’s $146-billion information technology industry is undergoing the biggest transition in its history amid a rapidly evolving landscape. The sector is struggling to match the explosive growth rates that it enjoyed in the 2000s amid volatile currency fluctuations that hammered profits and margins of all top Indian IT firms in the March quarter.

According to a Computerworld story last week, the Disney ABC Television Group cancelled a plan to farm out about 35 application developer jobs, amid a widespread outcry against outsourcing.

“Disney is also part of the overall investigation —it’s quite worrying for Indian IT firms, since a lot of other contracts that are being signed now are also going to be in the spotlight,” said an analyst with a top US-based research firm.

Experts said the politically charged debate on outsourcing is bound to heat up over the coming months with the US elections on the horizon. Infosys and TCS issued statements on Friday saying they are fully compliant with US immigration and visa laws.

“Infosys is committed to complying with US immigration laws. The US Department of Labor (DOL) regularly selects a percentage of visa and labor condition applications for extra scrutiny in this industry, and we work closely with the DOL to assist them in this activity in the ordinary course of our business. We have received no indication of any broader investigation of Infosys visa practices,” Infosys said. TCS said that the company “maintains rigorous internal controls to ensure we are fully compliant with all regulatory requirements related toUS immigration laws.”

Source:http://economictimes.indiatimes.com/tech/ites/us-government-goes-tough-on-indian-it-outsourcing-deals-with-disney-fossil-under-lens/articleshow/47669451.cms

Indian Firms Fight Fiercely with Global Peers Over Large Outsourcing Deals

May 26th, 2015

Indian outsourcing firms such as Cognizant and Wipro captured nearly a quarter of the top 100 outsourcing deals in 2014, according to a study by research firm IDC.Outsourcing
Despite being small in size compared to their American peers, Indian BPO providers are proving strong competitors for large outsourcing deals. To strength their hand they are putting forward new offerings such as cloud and hosting services.

Analysts say that investing in more transformative capabilities in areas such as analytics, social media, and mobility, and enhancing strategic local capabilities and resources, have enabled them to compete successfully with well-established players.

Leveraging the offshore business model has also contributed greatly to their success, according to David Tapper, IDC’s Vice President, Outsourcing and Offshore Services.

According to IDC’s data, Indian outsourcing companies represented more than 50% of the total contract value of the top 100 outsourcing deals in 2014. In 2013, by comparison, they represented 43% of the total contract value.

Globally, the top five vendors – who include the likes of IBM and CGI – have continued to snap up nearly 50% of high-valued outsourcing deals. With US$13.8 billion worth of deals, IBM tops the list. CGI is ranked second, though the value of the contracts ($2.8 billion) it won is considerably lower.

Indian firms Cognizant and Wipro are quickly catching up with CGI, having won contracts worth $2.7 billion and $2.3 billion respectively.

The research firm says the number of mega deals is currently shrinking, as are the number of government contracts. Furthermore, very few providers are competing for mega deals, partly due to a belief that large deals can be very complicated to implement.

Source:http://www.nearshoreamericas.com/report-indian-firms-fight-fiercely-large-outsourcing-deals-global-peers/

Indian IT firms like TCS, Infosys to gain from HP’s enterprise services cost cuts, say analysts

May 25th, 2015

Hewlett-Packard’s decision to cut $2 billion (about Rs 12,700 crore) in costs in its enterprise services business could open up opportunities for Indian technology firms such as Tata Consultancy Services and InfosysBSE -0.08 %, said analysts tracking the development. Outsourcing48

Infrastructure contracts such as HP’s $400-million data centre outsourcing deal with oil company BP in 2010 and its $700-million deal with German energy provider E.ON could be taken over by Indian firms when renewed, they said. HP’s troubled enterprise services businesses provides technology consulting, outsourcing and support services and competes with companies such as TCS, Infosys, Wipro, IBM and Accenture.

“In the infrastructure space, certainly they are being challenged by cheaper Indian providers,”said an Indian IT industry consultant, declining to be identified. “And the constant round of cost-cutting is a distraction and makes them less competitive.”

The 75-year-old company faces increasing pressure in India where its pricing is much higher than that of traditional outsourcing firms, and some shedding of contracts will happen with the split, giving Indian IT companies an opportunity to take over HP’s market share, said a second industry expert who also did not want to be named.

“HP has been in constant restructuring for a while; the whole company has been in flux,”said Tom Reuner, managing director at HfS Research. “It’s caught between two big rocks –the secular trend of asset light, more cloud-based IT and its own internal troubles.”

The planned cuts in the enterprises services division can come from staff reductions, moving more work offshore, delaying or eliminating investments, and writing down assets that are being deprecated, said Peter Bendor-Samuel, chief executive at consulting firm Everest Group.

Source:http://economictimes.indiatimes.com/tech/ites/indian-it-firms-like-tcs-infosys-to-gain-from-hps-enterprise-services-cost-cuts-say-analysts/articleshow/47409478.cms

Indian IT captured quarter of top 100 outsourcing deals in 2014

May 21st, 2015

India-based outsourcers captured nearly a quarter of the top-100 outsourcing deals in 2014, said International Data Corporation’s (IDC) analysis of worldwide outsourcing deals during 2012-2014.Outsourcing40

The analysis shows the top-five vendors in 2014 captured over 50 per cent of the total contract value (TCV) of top-100 outsourcing deals in 2014. This is up from 43 per cent by the top-five vendors in 2013, which included IBM with $13.8 billion, CGI with $2.8 billion, Cognizant with $2.7 billion, Capgemini with $2.6 billion, and Wipro with $2.3 billion. However, the average deal size continues to shrink with fewer mega-deals (TCV of $1 billion or more).

Research shows that there has been a shift from public to private sector deals in 2014.

An additional shift to fewer providers winning and potentially competing for the largest outsourcing deals is also occurring. “India-based outsourcers are making significant inroads into the global top-100 outsourcing deals,” said David Tapper, vice-president, outsourcing and offshore services.

“The combination of effectively leveraging the offshore business model; incorporating new methods of service delivery such as hosting and cloud; investing in more transformative capabilities in areas such as analytics, social media, and mobility; and enhancing strategic local capabilities and resources has enabled the India-based outsourcers to effectively compete with well-established competitors in the outsourcing industry for the largest of large-scale outsourcing deals.”

Source:http://www.business-standard.com/article/companies/indian-it-captures-quarter-of-top-100-outsourcing-deals-in-2014-115052000652_1.html

Gartner says Indian healthcare providers to spend US$ 1.2 bn on IT in 2015

May 19th, 2015

Healthcare providers in India are expected to spend US$ 1.2 billion on IT products and services in 2015, an increase of 7 per cent over 2014, according to Gartner, Inc., leading information technology research and advisory company. This forecast includes spending by healthcare providers (including hospitals, as well as ambulatory service and physicians practices) on internal services, software, IT services, data center, devices and telecom services.Outsourcing40

Dr Anurag Gupta, research vice president at Gartner said, “IT services, which includes consulting, implementation, IT outsourcing and business process outsourcing, will be the largest overall spending category through 2019 within the health care providers sector. It is expected to reach US$ 317 million in 2015, up from $295 million in 2014 – with the consulting segment growing 11 per cent.”

Internal services will achieve the highest growth rate amongst the spending categories with a 17 per cent increase in 2015 to reach US$ 297 million. Internal services refer to salaries and benefits paid to the information services staff of an organization. The information services staff includes all company employees that plan, develop, implement and maintain information systems. Software spending will grow 6.2 per cent to reach US$ 103 million in 2015, up from $97 million in 2014, led by growth in vertical specific software (software applications that are unique to a vertical industry. These are stand-alone applications that are not modules or extensions of horizontal applications).

“India has a young population and a fast growing middle class. Public sector healthcare will expand their focus on providing access to care mainly through primary coverage and leveraging mobile technologies. Private sector, on the other hand, will focus on building middle tier and tertiary care facilities mainly for the city dwellers,” said Dr Gupta.” India’s healthcare technology investments are still very small compared to the overall population. We expect providers to benefit by offering low upfront cost, recurring, or outcome base models, especially in core digitization technologies like hospital information systems.”

Gartner, Inc. delivers the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in hightech and telecom enterprises and professional services firms, to technology investors, Gartner is the valuable partner to clients in approximately 10,000 distinct enterprises worldwide.

Source:http://www.pharmabiz.com/NewsDetails.aspx?aid=88308&sid=2

India’s Outsourcing Stocks Need Work

May 18th, 2015

India’s stock market has been in retreat since mid-April, when the country’s bellwether information-technology services companies kicked off a weak earnings season. Revenue growth at the Big Four— Tata Consulting Services , Infosys , Wipro, and HCL Technologies —slowed to 7% in the first quarter from 12% in all of 2014.Outsourcing37

A stronger dollar was the main culprit, but not in the way you might think. Although the Indian rupee maintained its value against the greenback in the first quarter, the euro fell 12.5% against the dollar, and the British pound dropped 5.3%. That’s important because Europe has been the main driver of growth for the IT companies in recent years, rather than the U.S., says Jefferies analyst Atul Goyal. A weaker currency can prompt European companies to renegotiate terms or cancel outsourcing contracts. Meanwhile, a firmer rupee erodes margins. Last quarter, operating profit at the Big Four grew by just 2%.

The slowdown is likely to continue. Barring big economic changes, Barclays estimates, the Indian vendors will grow by high-single to low-double digits in the next three years, down from 20% just four years ago. Close to $150 billion in contracts is coming up for renewal, over 60% from Europe and the Middle East, which suffer from a mixture of dollar and oil woes.

A rising dollar also invites more foreign competition for U.S. business, the Indian vendors’ stronghold. Last month, France’s Capgemini (ticker: CAP.France) paid about $4 billion for U.S. IT peer iGATE (IGTE). Combined two outsourcers’s $13.5 billion in revenue is just shy of Tata’s $14.8 billion.

Infosys’ (INFY) new CEO Vishal Sikka, an ex-SAP executive, set off alarm bells recently, saying the industry had become “commoditized.” To win deals, “we have to go very aggressive on pricing,” he said. That was a possible public signal of a price war, according to UBS analyst Diviya Nagarajan. Curiously, Infosys expects its revenue to grow by 10% to 12% this year, even though its revenue declined sequentially in the first quarter.

FOR ALL OF THE WORRIES, shares of Indian IT vendors are pretty pricey. The richest, Tata (532540.India), trades at 20 times forward earnings; Infosys, at 16.8; HCL (532281.India) at 16.2; and the cheapest, Wipro (WIT), at 14.3. Investors’ high expectations don’t leave much room for error. Last October, Tata dipped 8.7% in a day after missing earnings by a slight margin.

One way to maintain this valuation is to return money to shareholders, suggests Barclays. U.S. tech consultant Accenture (ACN), for instance, trades at 19 times earnings despite sub-5% growth because it returns virtually all of its earnings via dividends and buybacks. Among Indian vendors, Tata pays out the biggest chunk of earnings via dividends, at 56%, followed by Infosys, at 39%.

While investors can hope for more, Infosys will likely keep most of its cash for acquisitions. Its new CEO plans to grow its $8.7 billion in revenues to $20 billion in five years, or an annualized 18% rate, and move into higher-end social, mobile, big data, and cloud technologies via purchases. In February, Infosys paid $200 million for automated-testing software vendor Panaya, valuing it at six times sales. UBS, worried about “execution errors,” sees another 17% downside in Infosys.

Jefferies’ Goyal advises investors to “take a steady, strong ship that won’t tumble in rough seas. He favors Tata, the biggest of the Big Four.

Source:http://online.barrons.com/articles/indias-outsourcing-stocks-need-work-1431743963

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